News from Notch Consulting, Inc.

Sid Richardson has scheduled a unit turnaround for a tread unit at Borger, Texas for April. The UTA will shut down Unit 4 for about 2 weeks. The company doesn’t expect the project to result in any supply disruptions. The project was originally scheduled for October/November but Sid moved it up due to the sluggish conditions in the US carbon black market. Notch expects that we will see more of this — accelerated maintenance schedules and perhaps some downtime for selected units — as the US industry tries to manage capacity most efficiently during the slowdown.

A quick update on the challenging conditions currently facing the US carbon black industry.

Cabot reports that its plant in Waverly, West Virginia will cease production by the end of March, though shipments will continue as long as inventories last. The move will remove 75,000 tonnes of tread capacity — the plant’s major grades were N120, N134, N339, and N351. At the time of the announcement, Waverly was Cabot’s only North American source for N120, N134, and N339, and one of only two sources for N351. Cabot reports that it has sufficient capacity at its remaining plants to pick up these grades and volumes elsewhere, though it didn’t publicly release details of where these grades were going.

Continental Carbon is scheduled to do a standard UTA (unit turnaround) for one of its units at Ponca City, Oklahoma, shutting the unit down for about ten days in April. (Rumors in the market had the entire plant shut down for April — not true.) Due to low inventories and ongoing production issues at the Phenix City plant, the project may lead to some short-term shortages for Continental customers.

US carbon black suppliers are hopeful that these moves will tighten the market. According to Notch estimates, the US carbon black industry is operating in the low 80s in terms of utilization, its weakest showing since the recession of 2001/2002. Margins are under tremendous pressure from high feedstock costs, and suppliers are facing a crush on working capital due to the contract lag (i.e., the time from when feedstock costs are incurred by the producer and when these higher costs can be passed on to the customer through price adjustments).

And pass-through remains an issue. Based on pricing estimates developed by Notch, it appears that carbon black price increases are not keeping pace with feedstock costs. In fact, average selling prices are below production costs, which means that at least some suppliers are losing money on every pound they sell. In short, the industry continues to chase oil, with little relief in sight. Clearly this situation cannot continue, and Notch expects that more capacity will be taken out of the US.

An informative and provocative article about the ongoing problems at the Warri, Kaduna and Port Harcourt oil refineries operated by NNPC (Nigerian National Petroleum Corporation). The Warri refinery includes a carbon black unit with an estimated 18,000 tonnes per year of capacity. The unit has been operating sporadically in recent years and is currently believed to be shut down.