Earlier this week, this blog reported on an announcement by Sid Richardson to shut down one of its tread units at its carbon black plant in Addis, Louisiana, idling about 90 million pounds (40,000 tonnes) of capacity. I have received a few additional details about the plan. First, the unit is not being mothballed; the shut down is considered temporary until that capacity is required again. It is, in effect, an extended UTA (unit turnaround) as the downtime will be used to do necessary maintenance and repairs. Second, it is not a cost cutting move but rather a response to current market conditions, and there are no worker layoffs associated with the shutdown. Finally, if market remains weak, the company may decide to restart the idled unit and take another unit offline to do similar maintenance work on a rotating basis.
November 25, 2008
November 24, 2008
“The worst I have ever seen . . .”
That’s a carbon black supplier’s assessment of the current US market.
In another sign of uncertainty, tire companies are delaying finalizing their annual supply contracts with raw material suppliers for their North and South American plants. Most other years, contracts have already been locked down by Thanksgiving. This year, I am hearing that contracts may not be finalized until late December or even into January. This makes it tougher for raw material suppliers to determine what next quarter (and next year) will look like. But across the board, I am hearing that volumes will be down significantly.
November 23, 2008
Sumitomo Plans to Introduce Oil-Free Tires by 2013
This story was all over the news, but it’s worth noting. Sumitomo Rubber has announced that it plans to begin selling tires in Japan that include no petrochemical materials by 2013, a company spokesperson announced this week. In June of this year, Sumitomo Rubber launched a line of tires in Japan under the EnaSave name in which petrochemicals account for just 3 percent of raw materials, compared to about 56 percent for conventional tires. The remaining 97 percent consists of oil-free materials such as steel wires, vegetable oil, rayon instead of polyester and nylon reinforcements, natural rubber instead of synthetic, and silica instead of carbon black. The only petrochemicals in the tire are 6PPD antioxidants and vulcanization accelerators. The price of the tire is more than 30 percent higher than that of an ordinary tire.
“How to produce the remaining 3-percent part from other natural resources but oil is now under development,” the Sumitomo spokesman, Ryota Senshu, said.
Sumitomo hopes to sell 20,000 units of the 97-percent oil-free tire in the 12 months from June, and sales thus far have been in line with the plan.
New SABIC/ExxonMobil Elastomers Project in Saudi Arabia to Include Carbon Black Unit
On November 19, 2008, Saudi Basic Industries Corp. announced that representatives of SABIC and ExxonMobil had signed a Heads of Agreement (HOA) and are conducting detailed studies for a new Elastomers project at existing petrochemical joint ventures Kemya (based in Jubail, Saudi Arabia) and Yanpet (based in Yanbu, Saudi Arabia).
The HOA defines the principal terms for the proposed multibillion dollar project, including the project’s scope, technology, marketing and feedstock supply. The project would establish a domestic supply of over 400 KTA of carbon black, rubber and thermoplastic specialty polymers (EPDM, TPO, Butyl, SBR/PBR) to serve emerging local and international markets. This project is being undertaken as part of Saudi Arabia’s National Industrial Cluster Development Program, which is responsible for accelerating growth and diversification of the manufacturing sector, including the automotive manufacturing industry.
The final decision to implement the project, which will require Board of Director approval for both joint ventures, is subject to the completion of more detailed studies of economic feasibility and the completion of all other statutory procedures.
The new Elastomers project would utilize additional feedstock allocated by Saudi Arabia’s Ministry of Petroleum & Mineral Resources, as well as additional feedstocks from other sources in the country that would be processed at Yanpet and Kemya.
Rhodia Opens R&D Center in Shanghai
On November 19, Rhodia inaugurated its new International Research and Development Center located in Shanghai, China. The center will become one of five R&D centers for Rhodia worldwide (two in France, one in the US, one in Brazil, and the new site in China). By 2010, the center is expected to employ 150 research scientists. The center will support Rhodia’s industrial activities in Asia.
Here is the press release.
Eliokem to Increase Wingstay Capacity in China
According to European Rubber Journal (subscription required), Eliokem plans to increase capacity and improve the quality of Wingstay L antioxidants at its plant in Ningbo, China. The article quotes Eliokem CEO Jacques Collonge, who indicated that the company was instituting new specifications for Wingstay L produced at the Chinese plant with regard to the content of residuals and the color of the product. These improvements may lead to more applications, such as the stabilization of white polymers. He did not indicate how much capacity would be added at the site or a provide a completion date for the project.
November 21, 2008
Sid Richardson to Idle Capacity at US Carbon Black Plant
On Friday, November 21, 2008, Sid Richardson Carbon & Energy announced that it would idle approximately 90 million pounds (about 40,000 tonnes) of tread grade carbon black capacity at its plant in Addis, Louisiana. The shut down is considered temporary, and the company has no plans to drop production of any specific grades at this time. Customers should not be impacted by the move, as Sid Richardson has adequate tread capacity at its other two US plants (located in Big Spring, Texas and Borger, Texas) to meet shipments. In addition to the shutdown, Sid Richardson has postponed plans to install a cogeneration unit at the Addis plant.
Here is the announcement.
November 12, 2008
Columbian Chemicals to Close Marshall Plant
On November 12, 2008, Columbian Chemicals announced that it would close its carbon black plant in Marshall, West Virginia on or about January 31, 2009. The move will result in the elimination of approximately 55 jobs. The plant has 50,0000 tonnes/year of capacity, all for carcass grades. In 2006, Columbian removed about 30,000 tonnes/year of tread capacity at the Marshall plant.
In a press release announcing the closure, Kevin Boyle, President and CEO of Columbian Chemicals, stated, “Continued overcapacity coupled with an uncertain business outlook has forced Columbian to reevaluate its assets in North America. We are optimizing our resources during this difficult economic period while at the same time maintaining our focus on our customers. Our remaining plants in North America are well positioned to continue to provide the same high level of service and quality Columbian’s customers have come to expect from our Marshall facility.”
He continued, “Our team in Marshall has worked hard over the last several years to keep the plant operating in a very competitive environment as we have seen demand shift away from North America. The decision to close the plant was difficult due to the impact on our employees, their families and the community.” He indicated that the closure of North American capacity was offset by recent and ongoing expansions in Brazil, Central Europe, and China.
Here is the press release.
November 11, 2008
Cabot Comments on the Current Market, Tianjin, and Contract Lag
A few excerpts from Cabot’s most recent conference call, held October 30, 2008 and covering the quarter and FY ended September 30, 2008. This is basically an amended version of the transcript from Financial Content. The first excerpt deals with the current downturn, the second with the status of new capacity in Tianjin, and the third with attempts to reduce or eliminate the effects of contract lag in Cabot’s supply contracts.
From Opening Remarks.
Patrick Prevost, Cabot CEO
Demand drivers for the tire sector include the number of global miles driven each year, which drives the replacement tire market, automotive build, which drives the OEM tire market, and commercial activity in government spending, which drives commercial trucking and public transport tire demand. In past economic downturns, the replacement tire market has acted differently than OEM tire demand. Although consumers may decide not to purchase a new car, replacing tires tends to be a safety decision and as such demand for replacement tires has usually been stronger than OEM tire demand during a slowdown.
Global carbon black demand has increased 3% to 3.5% per year over past 10 years. The industry, however, experienced 0% growth in 1998 during the Asian crisis and experienced a 2% to 2.5% decline during the 2001 recession. Clearly there are many differences between this downturn and previous ones. For example, credit availability has put significant pressure on new car sales, and greater volatility in oil prices has put pressure on miles driven. Our long-term view on tire demand growth continues to be — in spite of that — 3% to 4% per year with significant differences by region.
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From Q&A.
Saul Ludwig, Keybanc Capital
I’m concerned about how much, when Tianjin comes on in January how much does that increase your Chinese capacity?
William J. Brady, Executive VP & GM of Carbon Black Business
Well it increases it a fair amount. There is about 150,000 tonnes planned to come on in Tianjin.
Saul Ludwig
On a base of how much?
William J. Brady
On a basis of about 300.
Saul Ludwig – Keybanc Capital
So that’s a 50% increase?
William J. Brady
Approximately.
Saul Ludwig
But with the market down 16% this quarter and you’re about to bring on 50% more capacity is that, do we have something to worry about?
William J. Brady
Let me say a few words about the Tianjin investment. First of all remember that this is part of a global network and so we’ll evaluate that capacity and what we can do with it in the context of our global network. Second, this capacity is going to be some of the most competitive capacity in the world. It’s fairly low cost and it has our latest technology.
Now having said that, we have mechanical completion of that [expansion] due to finish up in the January timeframe, which we’ll do, and between now and then we will watch October, November, December volumes both in China and elsewhere and we’ll make a decision in that period whether we bring that capacity up right away or we have a slight delay in it or any delay at all.
Saul Ludwig – Keybanc Capital
Do you incur the fixed costs of this plant starting in January?
William J. Brady
Let me re-emphasize that this capacity, while it may be a bit mis-timed with the market, will be very powerful capacity, very advantageous capacity and will strengthen our China position over the long-term considerably. So, there might be a little bit of short-term pain associated with the timing of this capacity, but we’ll manage it well and over time it’s going to be very advanced and very important.
Patrick M. Prevost
Perhaps if I may, Saul, what needs to be remembered here as well is that this is capacity that is incremental to an existing site. So, its impact in terms of fixed cost is going to be very much manageable in terms of cash fixed costs, and, again I think the point Bill was making is important.
It is an expansion of our global network and we will and are continuing currently to optimize that global network to make sure that the cheapest possible ton gets delivered to the appropriate customer, and that is an advantage we have and that’s a flexibility that gives us the opportunity to maximize the bottom line and certainly do better than all of our competitors.
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From Q&A.
John Roberts, Buckingham Research
Patrick, at the investor meeting back in Boston you were going to try to shorten the price lag with carbon black costs as contracts renewed, I think. Have any contracts come up for negotiations since that investor day?
Patrick M. Prevost
We are absolutely committed to eliminating or reducing the lag that has been affecting the company, and that has actually brought us to report in the way we are reporting and considering the volatility of the feedstock markets. We believe that this lag has no reason to continue to exist and we’re going to, as I mentioned in the investor meeting in May, we’re looking at eliminating it over a period of 18 to 24 months as the contracts come up for renegotiation.
Some of the shorter term contracts that we’ve renegotiated have actually been adjusted to eliminate the lag and we’re going to have some longer term contracts coming up for renewal at different points over the next 18 months or so, and that will be a significant part of the negotiation and clearly we believe that as Cabot we cannot play the bank for our customers, and we’d rather focus on the things where we really can add value like the quality of the products and the ability to provide reliable service and products. So, I guess the answer to your question is that we’re committed to continue on this track.
Tokai Delays Carbon Black Expansions
Tokai Carbon has announced that is is delaying two planned carbon black expansions in China and Thailand due to uncertainty in the market as automakers slash output in Asia.
In Thailand, Tokai planned to expand from 110,000 tonnes/year to 180,000 t/y by spring 2010 by adding a production line and upgrading the manufacturing process. However, the company has decided to proceed only with the process improvements, which will raise capacity to 130,000 t/y. The addition of a new line would cost 4-5 billion yen ($40 million to $50 million), so the project will be delayed for a year or two in order to assess the state of the market.
In China, Tokai had planned to spend 6 billion yen ($60 million) to raise production at its new plant in Tianjin from 40,000 t/y to 100,000 t/y by year-end 2009. Now this project will be delayed by at least six months, to mid-2010 at the earliest.