Orion flags gains for Western carbon black markets amid Middle East tension

Houston, Texas – Orion SA has pointed to geopolitical disruption in the Middle East as a potential tailwind for Western chemical producers, while cautioning that the situation remains uncertain.

Addressing the "proverbial elephant in the room" in Orion's 2025 annual report, CEO Corning Painter pointed to the ongoing war with Iran and its wider implications for energy markets and supply chains.

“We have no unique insights into how long the Iranian conflict may persist, or where energy prices may ultimately settle once a definitive conclusion is reached,” Painter said 24 April.

However, he said, “Western chemical industry constituents are clearly experiencing tangible benefits from the supply chain disruptions that have ensued since the conflict was initiated.”

The Orion chief said the impact on commodity chemicals has been “fairly straightforward”, with disruption to low-cost feedstocks and higher logistics costs tightening utilisation rates in the West.

Those factors, said Painter, have “transferred advantage to Western producers, precipitated sharp and widespread pricing momentum, and expanded margins.”

The Orion leader, however, noted that any “normalisation” is likely to be “measured in quarters – not weeks or months – once the hostilities subside and more normal maritime trade resumes.”

Describing the current environment as “hyper dynamic,” Painter said the Western carbon black industry “stands to benefit directly and indirectly from the tumult”.

Among the factors cited, he said higher energy prices typically support earnings.

For instance, he noted, “a positive $10/bbl move in crude prices over a 12-month period translates into $7-$10 million of higher annualised EBITDA levels”.

Painter added that most feedstock cost volatility is contractually passed through, particularly in the company’s ‘rubber segment.’

Meanwhile, he said, higher natural gas prices in Europe tend to increase electricity costs, making Orion's "co-generation" more valuable.

Supply chain disruption and rising logistics costs are also expected to reinforce “a strong regional preference for local suppliers of inputs like carbon black,” the company leader said.

This contrasts with procurement trends in 2025 that showed “greater willingness to take chances on Indian suppliers”.

The Orion chief also pointed to potential constraints in Southeast Asia, including reported butadiene shortages, which he said “may have already affected tire production at certain factories in the Southeast region”.

Despite these potential upsides, the company leader stressed that Orion was not relying on "direct benefits" from disruption-driven gains.

“Rather, we are focused on tactical actions to help mitigate risk across our business.”

The measures, Painter noted, include price increases where contracts do not allow pass-throughs, and steps to offset “a stiff near-term working capital headwind from higher oil prices.”

These moves, he said, will help maintain positive free cash flow for the full year.

More broadly, Orion said elevated tire imports into Western markets have weighed on performance in recent years, particularly in 2025 when increased imports reduced local production and utilisation rates.

This dynamic also affected annual supply negotiations with tire makers, with lower pricing described as “the single largest factor” behind the bridge from 2025 earnings to the midpoint of its 2026 guidance.

However, Painter said conditions had begun to improve prior to the Middle East conflict, with export levels from key tire-producing countries starting to normalise.

“A sustained inflection in these trends would put us in a stronger position to negotiate next year’s agreements upon exiting 2026, and higher prices could ensue,” he said.

Looking ahead, the Orion CEO said it was too early to assess the full impact of the disruption, but said he expected that reduced tire output in Southeast Asia could support Western production and demand for its products.

“More importantly, industry utilisation rates in Western regions would presumably tighten, improving the set-up for 2027 contract negotiations that will occur later this year,” he concluded.