News from Notch Consulting, Inc.

November 8, 2008

Reflections of Vancouver

Filed under: Carbon Black — Notch @ 6:57 pm

The Carbon Black World conference was held last week in Vancouver, and I had the honor of co-chairing the proceedings along with Greg King of Sid Richardson Carbon & Energy. The people at Intertech Pira put together a great program of papers over two days, as well as an excellent preconference seminar on “Energy Recovery and Emissions Abatement in Carbon Black Manufacture,” conducted by CP Natarajan of Ganpads Consulting.

One of my primary take-aways from the conference is that there is a tremendous amount of uncertainty in the market right now, not just in carbon black but all the way up the supply chain, from tires to the automotive industry. It’s an uncertainty rooted in the unprecedented crisis in the global financial system over the last few months. What effect will the crisis have on consumer spending? On borrowing? Will companies be able to find financing for new projects? Even if financing is secured, will anyone go forward with risky new expansions during a time of such upheaval? Most importantly of all, how long will the credit crunch persist and will the crisis lead to a global recession? The answers to these questions are by no means clear at this time. The carbon black industry is dependent upon the tire industry, so as expansion projects in the tire industry are delayed or cancelled, the effects will directly impact carbon black expansion projects.

Based on currently announced expansions, 2009 promised to be one of the strongest years on record in terms of carbon black capacity expansions (measured as the net gain in global production capacity during the year). However, in case after case, I have heard about projects that are being delayed or reevaluated in the wake of the financial crisis. I am now working on a revised list of current expansions, and the updated information will be included in the next edition of the Carbon Black World Data Book, which will be published during November.

Another thought that occurred to me at the conference was that the US carbon black industry has lousy luck. I say this because, after a record run-up in feedstock costs over the summer, feedstock costs have plummeted in the third and fourth quarters, which should translate into fatter margins for carbon black suppliers after five consecutive quarters of movement in the other direction (i.e., steady increases in feedstock costs quarter-to-quarter which consistently favored customers due to the contract lag). But the sharp declines in feedstock costs are occurring at the same time that demand is dropping as tiremakers announce production curtailments, so pricing is taking a hit due to overcapacity. The part about lousy luck comes in when one considers that the same thing happened during the last period of protracted declines in feedstock prices, from 3Q 2006 to 1Q 2007. During this period, the beneficial effects of lower feedstock costs were mitigated by reduced demand due to the Goodyear strike in the US during 4Q 2006, as well as several major tire plant closures. What’s this industry have to do to catch a break?

Below are some photos from the conference.

The Renaissance Vancouver Hotel Harborside, site of the conference. Lunch was held in the rotating restaurant on the top floor.

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A view of Stanley Park and the North Shore from the Renaissance Hotel.

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Totem pole in Stanley Park.

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