News from Notch Consulting, Inc.

December 30, 2008

Gazprom Hit Hard by Oil Price Drop

Filed under: Carbon Black, General — Notch @ 12:28 am

What a difference six months make. Back in May, this blog highlighted an article from the New York Times that detailed how the Russian natural gas monopoly aspired to be the largest corporation in the world. The company saw its fortunes rising along with steadily escalating oil prices, and it had the political backing of the Kremlin — Gazprom’s chairman, Dmitri Medvedev, had just been sworn in as Russia’s president, succeeding Vladimir Putin, who became prime minister.

Today the Times reports that Gazprom is reeling under $49.5 billion in debt and is seeking a government bailout, having watched its market cap fall 76% since January. The debt was accrued during a buying spree over the last several years as Vladimir Putin sought to effectively renationalize Russia’s oil and gas industries under Gazprom and Rosneft.

As a result, by the time the downturn came, they entered the credit crisis deeply in debt and with a backlog of capital investment needs. (Under Mr. Putin, now the prime minister, Gazprom and Rosneft are so tightly controlled by the Kremlin that the companies are not run by mere government appointees, but directly by government ministers who sit on their boards.)

“They were as inebriated with their success as much as some of their investors were,” James R. Fenkner, the chief strategist at Red Star, a Russian-dedicated hedge fund, said of Gazprom’s ambition to become the world’s largest company. “It’s not like they’re going to produce a better mousetrap,” he said. “Their mousetrap is whatever the price of oil is. You can’t improve that.”

Read the article here.

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December 24, 2008

Tire Industry Feels the Pain of Auto Woes

Filed under: General, Tires — Notch @ 11:12 am

Miles Moore of Tire Business published an article (subscription required) yesterday, “As Faltering Auto Industry Bleeds, Tire Makers Suffer,” which discusses conditions in the automotive industry, including the bailout, and their effect on tiremakers.

Though some companies are more specific than others in what they reveal, various companies in the tire and auto parts industries agree that certain austerity measures—including production curtailments and employee layoffs—have proved expedient in what some commentators call the worst economic crisis since the Great Depression.

Another recent article in a similar vein appeared in Automotive News on December 22, “Many Suppliers Won’t Survive Production Cuts.” (subscription required). It included the following eye-popping statistics on domestic vehicle production:

Domestic and import brand auto makers in North America are expected to produce 2.1 million vehicles in the first quarter, according to projections by CSM Worldwide and company forecasts. That would be a stunning 39.2 percent drop from the same period in 2008.

Suppliers to the Detroit 3 will be in the toughest shape. Detroit 3 production is expected to total 1.1 million units, a precipitous 47.2 percent decline from the same period a year earlier.

The effects are plain to see, from Michelin’s production cutbacks, to Nokian cutting its sales forecasts and laying off the employees of Nokian Heavy Tyres for six months, to Bridgestone slashing its profit forecast.

Michelin Cuts Global Production

Filed under: General, Tires — Notch @ 10:47 am

Michelin issued a terse press release on Monday, December 22, 2008 indicating that it has “significantly cut back on operations in most plants worldwide.” The cuts are in response to sharp declines in tire demand in November in all European, North American, Asian and South American markets. According to the release, the current economic environment has led to exceptional costs due to under-utilization of capacity, which will amount to nearly €150 million in the company’s fourth-quarter accounts. With the production cut-backs, Michelin says it is taking the necessary steps to effectively manage inventories and maintain its flexibility moving into 2009.

Here is the press release.

December 17, 2008

Dow Closing EPDM Plant

Filed under: Carbon Black, General — Notch @ 2:10 pm

Last week, Rubber & Plastics News (subscription required) reported that Dow Chemical was planning to shut down its EPDM rubber plant in Seadrift, Texas, according to a company SEC filing. The move is part of a company-wide restructuring that will involve the closure of 20 plants, the temporary idling of 180 more plants, and the divestiture of non-core businesses. The Seadrift plant manufactures Nordel-brand EPDM with an annual capacity of 110,000 tonnes. Dow also operates an EPDM plant in Plaquemine, La., with capacity of 100,000 tonnes.

One little known fact about the Seadrift EPDM plant is that it actually was a significant consumer of carbon black, with annual demand in the range of perhaps 20 KT. This is because the plant was selling a type of EPDM masterbatch with carbon black premixed into the compound to ease processing. According to my sources, these quantities will not necessarily be removed from the market, but the closure of the plant will move these purchases from one centralized customer (and one primary carbon black supplier) to many diffuse customers, as compounders and MRG customers will now be forced to do their own mixing, since the Plaquemine EPDM plant sells conventional material, not premixed.

European Car Sales Down by 26% in Nov

Filed under: General, Tires — Notch @ 11:18 am

The European Automobile Manufacturers’ Association, ACEA, has reported that new passenger car registrations in Europe (encompassing the EU 27 and EFTA countries) fell by 25.8% in November compared to the same month of last year, declining for the seventh month in a row, mirroring the financial and economic crises. The last time registrations dropped this significantly was in 1999 and 1993, though data then included only the EU15 plus EFTA countries. Markets in Western Europe and the new EU Member States contracted at a similar pace (-26.0% and -22.6% respectively). All markets decreased except Finland, Poland and the Czech Republic. Ireland and Romania both saw registrations fall by more than 50% in November compared to a year ago, while Spain saw registrations fall by 49.6% and the UK by 36.8%.

January to November results show a 7.6% decline of the West European market, with around one million fewer cars registered compared to the same period last year. France managed to level last year’s demand so far (+0.8%), while registrations in Germany declined by 1.5%, in the UK by 10.7%, in Italy by 13.4% and in Spain by 26.0%.

Markets in the new EU Member States echoed the November drop recorded in Western Europe, plummeting by 22.6%, and against the trend so far. The new EU Member States long showed more resilience, in relative terms, because of the greater number of first-time buyers as opposed to the replacement market of Western Europe. Of the main markets, the Czech Republic (+2.0%) and Poland (+10.7%) posted growth, compensating the negative results recorded in Hungary (-28.4%) and Romania (-53.1%). Eleven months into the year, the region posted growth with 0.3% more cars registered than over the same period a year earlier. Hungary and Romania saw their new registrations go down by 7.4% and 7.5% but the Czech Republic and Poland performed better than last year with a 9.3% upturn.

Cooper to Close Georgia Tire Plant

Filed under: General, Tires — Notch @ 10:27 am

On December 17, 2008, Cooper Tire and Rubber announced that it planned to close its tire plant in Albany, Georgia by the end of 2009. Operations at the plant will wind down over the next twelve months as production is moved to other plants or shut down entirely. The facility was acquired by Cooper in 1990 and employs approximately 1,400. The plant has a capacity of 22,700 units/day for passenger and light truck tires, or about 20% of Cooper’s total US capacity. It is not clear from the initial announcement what the net reduction in Cooper’s US capacity will be. Cooper intends to realign the mix of products at its remaining U.S facilities located in Findlay, Ohio, Texarkana, Ark., and Tupelo, Miss., to meet customer demand. Notch estimates that the Albany plant consumed 16-20 KT of carbon black per year, but, again, it’s not clear how much of this demand will be removed as opposed to shifted to other plants.

Here is the press release.

December 11, 2008

Rhodia to Idle Silica Capacity

Filed under: Silica — Notch @ 5:31 pm

Earlier today, this blog reported on Rhodia’s announcement regarding current market conditions and their effect on the company’s 2008 results. The announcement indicated that, in response to these conditions, Rhodia Silcea would be temporarily idling some of its production plants.

As a followup to that announcement, Notch has learned that Rhodia will idle all of its precipitated silica plants for a period of one to two weeks over the Christmas holidays to avoid building up excess inventory due to weak demand from the tire industry. The program will include all of its precipitated silica plants. including one in the US, two in Europe, two in Asia, and two in South America. A source at the company described demand from both the tire and MRG sectors as extremely depressed, while non-rubber markets for silica (such as dentifrice and food) are soft but not quite as depressed. Rhodia’s project to build a new silica plant in China is still moving forward, with startup scheduled for year-end 2009.

Flexsys Drops Appeal Against Kumho

Filed under: Rubber Chemicals — Notch @ 12:55 pm

According to Rubber & Plastics News (subscription required), Flexsys Americas L.P. has dropped an appeal of its patent infringement lawsuit before the Supreme Court of South Korea. The suit was filed in April 2004 and alleged that Korea Kumho Petrochemical Co. Ltd. had violated Flexsys’ patents for the manufacturing of 4-ADPA and its derivative, the antidegradant 6PPD.

In November 2008, the US ITC ruled in favor of Korea Kumho Petrochemical when it terminated an investigation into the alleged violations initiated by Flexsys America on May 12, 2008.

Here is a press release from Korea Kumho on that decision.

Rhodia Revises 2008 Outlook

Filed under: General, Silica — Notch @ 12:43 pm

On December 8, 2008, Rhodia issued a press release revising its guidance for 2008 in the context of the worsening economic environment. The company is feeling the effects of declining end-market demand and customer de-stocking, with the worst effects being felt by the Polyamide, Silcea, and Novecare enterprises. The lower demand is preventing the Group from capturing some of the positive impact of lower raw material and energy costs.

According to Rhodia Chairman and CEO Jean-Pierre Clamadieu, “Addressing this very challenging macroeconomic environment, the Group has reinforced the implementation of the action plans announced early November. These measures include the temporary closure or slowdown of some of our production facilities, primarily operating in the Polyamide, Silcea and Novecare enterprises. Furthermore, we remain focused on stringent cash management in order to secure a positive Free Cash Flow generation for the year. ” (My emphasis) The release did not specify which facilities would be affected.

Here is the release.

Cabot Expects Quarterly Rubber Black Volumes to Be Down 20-30%

Filed under: Carbon Black, General — Notch @ 12:29 pm

On Wednesday, December 10, 2008, Cabot Corporation issued a press release indicating that it expects to report significant volume declines for the first quarter of FY 2009, which ends December 31, 2008. In particular, Cabot President and CEO Patrick Prevost indicated that quarterly rubber black volumes would be 20-30% lower in 1Q FY09 than in the same quarter last year. Responding to the slowdown, Prevost indicated that Cabot expected to curtail its production by as much as 40% and to implement operational and structural adjustments to reduce operating costs. The release did not specify where or in what business segments these production curtailments would be implemented. Cabot will report its quarterly results on January 28, 2009.

The main text of the press release is below. The link is here. An Associated Press story on the release is here.

___________________________________________________

Cabot Corporation (NYSE: CBT) today announced that it expects to report significant volume declines for the first quarter of fiscal 2009 and is taking a series of aggressive actions to address continuing market challenges.

Patrick Prevost, Cabot’s President and CEO stated, “Global weakness in the tire, automotive and construction industries, intensified by customer inventory reduction, is causing significant volume declines during the first quarter of fiscal 2009 in each of our major geographies. First quarter volumes in our Rubber Blacks, Performance Products and Fumed Metal Oxides Businesses are expected to be 20-30% lower than in the same period last year.”

Prevost continued, “It is difficult to foresee how the remainder of the fiscal year will develop, but we expect that the lower first quarter volumes will have a considerable impact on the full year and we are preparing for an extended slowdown. In light of this, we have gone through a detailed review of our global operations and have developed a plan to reposition Cabot for these new market conditions. In addition to the current curtailments of as much as 40% of our production, we will implement operational and structural adjustments. These actions, which began in October of this year, are expected to yield in excess of $80 million of annualized costs savings for fiscal 2010. We will also reduce our capital spending by approximately $50 million versus fiscal 2008 and accelerate our aggressive working capital reduction projects.”

“While the current market situation is sobering, we anticipate that our earnings and cash flows in the first half of fiscal 2009 will be helped by lower carbon black raw material costs. Cabot remains a strong company with leading global positions in our key businesses, robust financials and strong liquidity. We have substantial future growth opportunities, remain committed to our long-term technology projects and continue to invest prudently in our new businesses. All of these factors position us well to withstand these challenging times and emerge a stronger company,” concluded Prevost.

The Company expects to announce earnings for the first fiscal quarter of 2009 on January 28, 2009 and discuss results with shareholders at its earnings teleconference on January 29th.

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