Houston, Texas – Orion Engineered Carbons has posted decreases in first quarter rubber black sales and volumes and expects a larger Covid-19 impact on the segment in the second quarter.
Rubber carbon black volumes decreased by 11% year on year to 177 kilotonnes in the first three months of the year, due to “a sharp decline” in sales as a majority of tire and auto manufacturers idled plants from mid-March.
Net sales decreased by 14.6% to $216.2 million (€199 million) primarily due to lower volumes and passing through lower feedstock costs to customers. Base price increases partially offset those impacts.
Lower volumes also reflected the impact of ‘a deliberate commercial strategy’ for the rubber segment to raise prices closer to reinvestment levels over volume, Orion added.
Gross profit fell 10.8% to $50.5 million due to lower volumes and negative foreign exchange translation. The effects were offset in part by base price increases and “favourable absorption due to inventory build,” Orion added.
The segment’s earnings (adjusted EBITDA) rose 1.7% to $35.8 million reflecting higher base prices and favourable absorption.
“Orion executed well in the first quarter and we were on track for strong financial results until the latter half of March when many tire customer plants shut down,” said CEO Corning Painter.
The rubber segment saw further declines in April, as the pandemic spread across Europe and Americas.
“In April, we estimate roughly 90% of North Americas and 75% of Europe's tire factories were idled or severely curtailed with plans to slowly begin production at reduced rates in May and June,” Painter said in an earnings call 7 May.
Automotive OEM manufacturing plants are tracking a similar schedule, Painter added.
“Against this backdrop, in April Orion's plants operated in the mid-40s [utilisation rates] in the Americas and Europe and in the mid-50s in Asia,” the CEO noted.
During the month, rubber volumes demand declined 60% in the Americas and EMEA and 34% in Asia, according to the company official.
“Under these conditions we operate the reactors in campaign mode up running to build inventory and then idling the reactors while we continue to ship. We have had to lay off employees at one location so far,” Painter concluded.
Comments in transcript sourced from Seeking Alpha.