Outlook bright for carbon black?

Can major manufacturers continue on the track of strong market growth and investment seen last year?

After a period of strong demand and tightness of supply the carbon black market showed signs of cooling towards the end 2018.

Birla Carbon president Europe & Africa, John Davidson is detecting “cautious optimism” in his region for the rest of the year, with predictions of 1-2% growth in Europe.

“Our customers are feeling reasonably confident that they can deliver that,” Davidson told ERJ during the Tire Tech Show, in Hanover, 6 March.

While the automotive industry has witnessed a “huge amount of volatility”, the macrotrend is still that people want to own vehicles and drive more miles, he continued.

A positive side of the tire market is the truck and bus tire market – particularly in Europe, added Davidson, who joined Birla Carbon just over a year ago.

“If you look at that segment, many of the tire makers are forecasting nice growth…. There seems to be confidence that truck & bus tires are going to be underpinning growth for European tire makers this year,” said the Birla Carbon official.

The growth in truck and bus tires is, of course, driven not by the consumer but by the general industry, meaning that as long as the GDP continues to grow globally, the requirement for truck and bus tires will continue to grow.

“In terms of overall supply and demand, it was very tight last year… But the market has balanced since then,” Davidson went on to explain.

According to the Birla Carbon official, there were very specific reasons why the market was very tight last year.

There were supply issues particularly in Europe, and the source of imported materials into Europe was not available for various reasons.

One of the reasons, according to Davidson, was China, where demand was also strong last year, and several plants were shut down because of environmental concerns.

“What I’m learning in this industry is that what happens in China, does really matter. Things that happen there, cascade across the world,” he pointed out.

In addition to the shortage of supply to the market, demand from the industry was quite strong last year too.

“I think the sentiment across all sectors, not just the tire industry, was positive,” according to Davidson.

This includes speciality customers and mechanical rubber goods (MRG) clients, who mainly supply to the automotive industry.

“You could say everything had a tailwind last year,” he added.

However, towards the middle of the year, the dynamics changed, due in part to the introduction of the WLTP emissions testing measures across the EU in September 2018.

Before coming into effect, the WLTP caused a slight surge in sales in the region. This was, however, followed by softer sales in the fourth quarter.

“So, things began to slow down in the MRG segment and to some extent in the tire segment too,” Davidson added.

Over the past few months, according to the Birla Carbon official, demand has been less robust than during the first half of 2018.

But Davidson believes that the period of customers clearing their inventories is over and what we are seeing right now in terms of demand, reflects true demand.

“I’m optimistic that we will have a strong year. The opportunity for us is to continue to improve the customer experience, be an even more consistent supplier in the market, and ultimately drive customer loyalty” Davidson concluded.

For his part, Cabot Corp. CEO Sean Keohane noted “softer automotive demand, customer inventory destocking and a weaker environment in China” in the first quarter of its 2019 fiscal year.

“Margins in China were negatively impacted by lower pricing from weak automotive demand coupled with high inventory levels,” said Cabot of the period to 31 Dec, 2018.

Another negative factor, it said, was a “sharp decline” in feedstock costs toward the end of last year.

Looking ahead, Keohane said, “Despite the current business environment, we remain confident in our ability to grow earnings this fiscal year.

“We expect customer destocking and the impact on automotive production from new emissions regulations in Europe to have less of an impact in the second quarter.”

While the segment should also benefit from new customer agreements, it still faces “headwinds from a challenging China environment and lower oil prices.”

But, added Keohane, “as the forecast for auto production strengthens and the China economy improves, we anticipate stronger volumes and margins in the second half of our fiscal year.”

There were similarly positive soundings Chinese carbon black maker Longxing Chemical, which saw net profit increase 166% year on year to Ä17 million (133 million yuan) in 2018.

Revenue last year rose 14% to €403 million, 93% of which was from carbon black and 4% from white carbon black, the Xingtai, Hebei-based company announced 15 Feb.

The average carbon black price in 2018 climbed 22% compared with a year ago, according to Longxing’s annual report.

The company’s net profit excluding non-recurring items during the period increased by 116% to €14 million.

Last year, Longxing produced 450 kilotonnes of carbon black and sold 440 kilotonnes, said the annual report.

The company claims to be among the top 3 carbon black maker in the China, which has an overall production of around 7.5 million tonnes.

Over the past two years China’s annual carbon black capacity expanded by 1.2 million tonnes, outgrowing total demand, said the annual report.

Carbon black prices continued to rise, as a number of plants in Hebei, Shandong and Shanxi provinces suspended production due to tightened environmental regulations last year, the company’s board secretary Liu Feizhou told ERJ.

“Longxing is among the sector’s best in waste treatment facilities and our production hasn’t been impacted,” said Liu.

According to Liu, some of the competitors have resumed production and carbon black price has been falling back so far this year.