News from Notch Consulting, Inc.

May 12, 2008

Phillips Carbon Black Raising Prices

Filed under: Carbon Black — Notch @ 8:40 pm

According to Reuters India, Phillips Carbon Black intends to increase carbon black prices by 15 percent due to higher crude oil prices.

“The dialogue is already on with our main consumers, which is the tyre industry,” [PCBL] Chairman Sanjiv Goenka told Reuters on Friday.

PCBL Signs Agreement for Carbon Black Plant in Vietnam

Filed under: Carbon Black — Notch @ 8:34 pm

According to several Vietnamese sources, Phillip Carbon Black signed an agreement on May 9 with three Vietnamese companies to build Vietnam’s first carbon black plant. The three Vietnamese partners in the venture are the Southern Industrial Rubber Joint Stock Company, the Da Nang Rubber Joint Stock Company, and the Golden Star Rubber Company, all of which are subsidiaries of Vinachem (the Vietnam National Chemical Corporation.

According to a short article on VietnamNet,

The plant will be built in southern Ba Ria-Vung Tau province at the cost of US$65 million, of which 22 percent will be contributed by the three domestic companies. The plant is expected to produce around 110,000 tonnes annually with half the output for export.

According to an article on Thanhniennews.com, exports will be concentrated in Japan and Korea. Start up is scheduled for 2009.

Both articles quote the same figures for the amount of carbon black that Vietnam imports every year: putting the total at about 50,000 tonnes valued at $60 million ($1,200 per tonne), with the main importers listed as India, Korea and the US.

According to reported trade statistics, Vietnam imported 19,851 tonnes of carbon black valued at $19 million in 2005 (the latest year for which import data are available). If one looks at export data (i.e., the amount of carbon black that trading partners reportedly exported to Vietnam), in 2006, Vietnam imported about 26,950 tonnes of carbon black from 16 countries, with the leading suppliers being China (7,396 tonnes), Korea (7,132 tonnes), India (4,654 tonnes), Thailand (3,516 tonnes), Malaysia (1,759 tonnes), Indonesia (1,427 tonnes), and Iran (550 tonnes).

According to Tire Industry Investment 2008, Yokohama Rubber opened a new tire plant in Ho Chi Minh City in 2007, while Kumho Tires inaugurated a new tire plant in Ho Chi Minh City in March 2008. These new plants are expanding the domestic market for carbon black in Vietnam as they ramp up to full capacity.

Gazprom’s On-Going Saga

Filed under: Carbon Black, General — Notch @ 3:23 pm

An interesting article from the New York Times on Gazprom’s recent activities. Last week, Dmitri A. Medvedev, Gazprom’s current chairman, was sworn in as Russia’s president. He succeeds Vladimir Putin, who will become prime minister. The current prime minister, Vickor A. Zubkov, is expected to replace Mr. Medvedev as chairman of Gazprom at the company’s annual shareholders meeting in June.

As the article illustrates, Mr. Putin used his tenure as Russia’s president to reassert the government’s direct control over Russia’s vast energy resources. Reflecting this consolidation, Gazprom now ranks as the world’s third-largest company by market value, and may surpass ExxonMobil to become the largest publicly traded company by 2014.

One interesting piece of information in the article is related to the domestic price of natural gas for Russian consumers:

Gazprom’s ties to the government are already paying dividends in the domestic market. Under a policy championed by Mr. Medvedev when he served as deputy prime minister, Russian consumers are going to have to pay starkly higher prices for natural gas. Prices are set to rise about 25 percent a year, starting this year, with the goal of reaching parity with world energy prices by 2011.

Policies like this mean that average Russians won’t continue enjoying their traditional access to cheap energy, and they offer a stark example of the government’s willingness to give Gazprom a leg up — regardless of the social fallout.

This policy has implications for many industrial sectors, but particularly carbon black, where producers will be paying more for natural gas.

May 5, 2008

Amerityre Begins Commercial Production of Solid Polyurethane Tires

Filed under: Tires — Notch @ 9:04 am

On Thursday, May 1, Amerityre Corporation (Boulder City, Nevada) announced that it had initiated commercial production of solid polyurethane elastomer tires. Amerityre will supply the tires to Oxbo International Corp. for use in farm implements used to chop or bale alfalfa and hay. The first-year volume for the 50-lb. gage tires will be 1,200 units, equivalent to about $200,000 in revenue. Other potential applications for Amerityre’s solid PU tires include forklifts and aperture tires used in the construction and material handling industries.

Here is the press release from Amerityre.

Update: These tires do not require reinforcing fillers – no carbon black or silica. Also, as currently configured, they do not require antidegradants – no 6PPD or TMQ. So these tires really are a significant innovation in the tire industry, and potentially a disruptive technology for raw materials down the road.

May 2, 2008

Aditya Birla Nuvo Releases 4Q and Annual Results

Filed under: Carbon Black — Notch @ 3:32 pm

Aditya Birla Nuvo, parent company of Hi Tech Carbon, released its fourth quarter and annual results on Wednesday, April 30. The company reported consolidated income of Rs. 12,134 crore for the full year ended March 31, 2008, up 45% year-on-year compared with the year ended March 31, 2007. Net profit, however, fell by 46% to Rs. 150.8 crore, down from Rs. 280.9 crore.

The Carbon Black business had its highest ever revenues and profitability. Full year revenues of Rs. 863.8 crore were up 17% compared to FY2006/07, while operating profit (PBDIT) of Rs. 152.6 crore was up 15%.

Here are the results.
Here is a link to the results presentation.

The presentation suggests that the new greenfield plant in Western India is still under review: “Carbon black business, though received environmental clearance for greenfield expansion by 120K MT in Western India, will decide after examining other sites.” (Slide 7). This blog reported a few months ago that Hi Tech may be considering a site in Sri Lanka instead of India for its new greenfield plant. Previous posts here and here.

In a discussion of the Carbon Black business results, Aditya Birla Nuvo highlighted key challenges along with solutions:

Challenge: Tap buoyant domestic industry growth
Solution: Expediting greenfield expansion of 120 KT to achieve domestic leadership

Challenge: Volatile CBFS prices
Solution: Optimising market – product – logistic mix & managing CBFS procurements

Slide 28 details the company’s Capex and Investment Plans. According to the slide, the Carbon Black business plans to spend Rs. 16.6 crore ($41 million) in Project-based expenditures, and Rs. 22.1 crore ($55 million) in Modernization and Maintenance expenditures in FY 2008/09.

Slide 47 details the Carbon Black business results. According to the slide, the business produced 215,103 tonnes of carbon black in FY 2007/08, which is 102.4% of its installed capacity. This is up 18% from 182,669 tonnes in FY 2006/07, or 107.5% of capacity. Exports represented 25% of production, up from 18% in FY 2006/07.

Cabot Still Feeling Hit from Contract Lag

Filed under: Carbon Black — Notch @ 2:27 pm

On Wednesday, April 30, Cabot released its results for its second quarter of FY 2008. The company announced net income of $11 million for the quarter, including $8 million after-tax of charges from certain items.

This compares to net income of $30 million ($0.45 per diluted common share) for the second quarter of fiscal 2007, which included $12 million after-tax ($0.17 per diluted common share) of charges from certain items. Cabot’s results during the quarter were unfavorably impacted by approximately $20 million from the time lag of the feedstock related pricing adjustments in the Company’s rubber blacks supply contracts and the immediate recognition of higher feedstock costs in North America, due to the use of LIFO accounting. This compares to a $5 million positive impact from these factors during the same quarter of 2007.

The excerpt highlighted below is from the section of the release covering the Carbon Black Business:

When comparing the second quarter of 2008 to the second quarter of 2007, rubber blacks volume declines in Europe and South America were driven by decisions we made to change our customer and product mix to maximize profits, with the resulting loss of shorter term volumes. When comparing the second quarter of 2008 to the first quarter of 2008, rubber blacks volume declines in China and Asia Pacific were driven by seasonality due to holidays in those regions.

(Emphasis mine).

The press release is here.

Cabot held its conference call on the results yesterday, May 1. The webcast of the conference call is here. Cabot again has provided a deck of slides to accompany the presentation. See the above link under “Supporting Materials.” Here is a transcript of the conference call.

Beginning last quarter, Cabot now provides additional data to better illuminate the effect of Contract Lag and LIFO (last-in, first-out) inventories for feedstock purchasing on the Carbon Black Business PBT. (Contract lag refers to the time lag in the company’s ability to pass on feedstock cost increases to customers for carbon black sold under long term contract.) Data is provided going back ten quarters, to Q1 2006. In Q2 2008, Contract Lag and LIFO together reduced Carbon Black PBT by $20 million, which is its highest level ever, according to the company.

Here are some of my takeaways from the conference call:

One useful slide in the presentation provides Cabot’s installed capacity and dollar sales for China for the last seven years. Current capacity is about 275,000 tonnes, and annual revenues are about $260 million. Cabot is on-schedule to bring two additional rubber black units on-stream at Tianjin in early 2009. A new unit for performance blacks was started up at Tiajin in October 2007.

Cabot closed the Waverly plant during 2Q 2008, 40 years to the month from the date the plant was first opened. The closing was attributed to:
1. the declining tire market in the US
2. an attempt to reduce the company’s fixed cost base in the region. Cabot estimates that it will realize $10 million per year in fixed cost savings after the Waverly closure is complete.

As highlighted in the bolded section above, it is clear that Cabot is restructuring its contracts to emphasize margins instead of volumes. One caller (Mike Judd from Greenwich Consultants) asked whether Cabot was seeking to alter the terms of its long-term and annual contracts to enable the company to more quickly recoup the feedstock costs. In response, Cabot’s President and CEO, Patrick Prevost, said, “Clearly, some of these contracts were negotiated at a time when oil prices and raw material prices were much more stable and they did not create the types of effects we’re seeing today. So we’re in the process of looking at how we’re going to deal with the situation, contracts will come up for renewal and we will consider ways to mitigate the lag and work with our customers to make sure both sides can actually live with a perhaps improved contract structure.” (My transcription.)

In response to a question regarding profitability in Performance Products, Bill Brady indicated that pricing trends are strong in this segment, and that the company is doing a “timely job of recovering feedstock increases.” He also said that, “the higher the value in the application, the better we’re doing.”

In response to a question on North American utilization rates after the closure of Waverly, Bill Brady indicated that Cabot’s utilization rates are high (without giving specific figures), but estimated that industry-wide rates are low, in the 80s. (This agrees with Notch industry-wide figures.)

Cabot indicated that it would hold an Analyst’s Day on May 29, so more information on strategic issues will be available then.

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