News from Notch Consulting, Inc.

During its quarterly conference call held today at 2:00 pm, Cabot Corporation provided details of its restructuring plan announced in December. Cabot will shut down its carbon black plants in Stanlow, UK and Berre, France, and will mothball carbon black capacity at its plants in Sarnia, Ontario and Merak, Indonesia. Cabot will also close a Cabot Plastics plant in Dukinfield, UK, a tantalum powder plant in Boyertown, PA, and its regional office in Kuala Lumpur, Malaysia. The company will reduce work hours at its Fumed Metal Oxides plant in Rheinfelden, Germany, where utilization will be reduced to very low rates or even zero rates going forward.

Patrick Prevost, President & CEO of Cabot, gave a figure during the call that the restructuring would remove 250 to 300 KT of capacity. According to Notch figures, the permanent shutdowns in the UK and France would remove 175 KTPY, which would mean that a total of 75 to 125 KTPY would be mothballed at Canada and Indonesia. The mothballed units would be available to be restarted as dictated by demand.

The question no one asked: Has the construction phase of the new rubber black units at Tianjin been completed? And how long will the startup of these units be delayed?

Responding to a global downturn that reduced rubber black volumes by 29% last quarter, Cabot has announced a major restructuring of its operations, including the closure of four plants and one regional office. Cabot will also mothball assets at two sites, reduce hours at one site, and delay the start-up of capacity in China. In its earnings announcement, released after the close of business on Wednesday, Cabot did not indicate which plants would be affected. Cabot will hold an earnings conference call on the results on Thursday, January 29, at 2:00 pm EST.

For the first quarter of FY 2009, Cabot Corporation reported net sales of $652 million and net earnings of $4 million ($0.06 per diluted share), compared to net sales of $711 million and net income of $36 million ($0.56 per diluted share) for 1Q FY 2008. Profitability benefited from favorable contract lag, offset by significantly lower volumes in all regions from lower demand in the tire and automotive industries and customer de-stocking.

Compared to the same period of fiscal 2008, Cabot’s Rubber Black volumes declined by 29% globally — North America decreased 22%; South America decreased 40%; the Europe, Middle East, Africa region decreased 29%; Asia Pacific (excluding China) decreased 26%, and China decreased 30%. The time lag of feedstock-related pricing adjustments in Cabot’s rubber blacks supply contracts benefited results by $22 million in the 1Q FY 2009, while the favorable LIFO impact was $10 million. This compares to an unfavorable contract lag impact of $9 million and an unfavorable LIFO impact of $6 million in the same period of 2008. Additionally, the Rubber Blacks Business recorded an $11 million unfavorable adjustment in order to reduce inventory values to current market prices.

Below is the section regarding the restructuring program.

Restructuring

In response to a significant reduction in global demand, Cabot today announced a restructuring of its operations. Over the course of calendar year 2009, the Company intends to close four of its manufacturing operations and one regional office. In addition, Cabot plans to mothball assets at two sites, implement short worktime at one site and delay the start-up of new capacity in China. The restructuring is expected to result in an approximate $80 million cash charge and non-cash charges of approximately $70 million. A majority of the total costs will be incurred during fiscal 2009. The Company has already instituted hiring, travel and salary freezes, reduced capital spending plans by $50 million from fiscal 2008 levels, eliminated 300 contractor positions, reduced corporate costs and realized significant working capital reductions. This restructuring plan is expected to deliver in excess of $80 million of annual fixed cost savings in fiscal 2010 and result in a reduction of approximately 500 jobs, or 12% of Cabot’s global workforce.

In November, this blog reported (here and here) that Sid Richardson had idled one of its tread units at its carbon black plant in Addis, Louisiana. Capacity at the idled unit was approximately 90 million pounds (about 40,000 tonnes). At that time the shutdown was announced, Sid Richardson indicated that it was considered temporary, and that there were no plans to drop production of any specific grades.

Notch has learned that the idled unit was started back up in January at reduced capacity after excess inventory had been sold off and contract requirements justified additional production.

Notch estimates that the US carbon black industry as a whole was operating at 63%–65% of capacity in the fourth quarter 2008.

Notch Consulting is proud to announce the publication of the Carbon Black World Data Book 2008. Published annually, the Carbon Black World Data Book is an essential resource for anyone involved in the carbon black industry, whether as a supplier of feedstock, a producer, or a purchaser. The report provides data on carbon black capacity, capacity utilization, production, imports, exports, apparent consumption, demand by market (passenger tires, truck tires, other tires, non-tire rubber goods, and specialty) and demand by grade (tread, carcass, and other), as well as market value and average pricing. Rubber consumption and tire production also are provided. Data include both a historical series for all years going back to 1997 as well as forecasts for 2009, 2010, 2015, and 2025. This edition of the report is based on the latest data available on the global motor vehicle, tire, rubber, and carbon black industries.

The report was originally scheduled for November, but Notch decided to delay publication due to the emergence of the global financial crisis in September/October. The high degree of uncertainty in the financial sector — particularly the freezing of credit markets — that characterized the first few months of the current downturn made it almost impossible to make accurate forecasts for consumer-related industries such as motor vehicles, tires, rubber, and carbon black. Now, with the benefit of several more months of data (not to mention numerous conversations with suppliers all over the world), the assumptions and forecasts in the Carbon Black World Data Book have been substantially revised to reflect the current economic situation.

Coming off five years of unusually strong volume growth during the 2002 to 2007 period, the global carbon black industry saw fundamentals deteriorate steadily over the course of 2008, and by year-end the industry was facing its most challenging conditions in at least 25 years, and perhaps ever. Even prior to the emergence of the global financial crisis early in the fourth quarter, 2008 was shaping up to be one of the most difficult years on record for the carbon black industry, as steadily escalating feedstock costs in the first half of the year put intense pressure on profit margins and working capital due to contract lag. At the same time, OEM tire markets declined sharply along with new vehicle sales (with the SUV segment especially affected), while replacement tire markets suffered due to high gas prices (which reduced miles driven).

Suppliers have responded to these difficulties by scaling back or postponing expansions, shutting down or idling under-utilized capacity, and implementing operational improvements to reduce operating costs. Even with these measures, 2009 will be an extremely challenging year, particularly in the first half. The Carbon Black World Data Book chronicles the industry’s current conditions in detail, and provides forecasts for short term recovery as well as long term growth.

To get more information or to order this report, write to info AT notchconsulting.com, call Notch Consulting at 413-253-7733, or visit Notch’s website.

Below is an Overview and Table of Contents from the report.

Carbon Black World Data Book 2008 – Overview & Contents (PDF)

Yesterday, this blog reported that Phillips Carbon Black had announced that due to a technical snag, the commissioning of a 30 MW co-generation power plant at the company’s carbon black plant in Durgapur, India was delayed. Now Notch has heard from a source at the company that it experienced some technical problems during the plant start-up, which are being investigated. The company expects the unit to be up by end February 2009.

According to a new article in the The Hindu News, RPG Group, which is parent company to Phillips Carbon Black, is pressing forward with an aggressive expansion program over the next several years, despite the current economic downturn.

Unfazed by the economic slowdown, Harsh Goenka-led RPG Group has chalked out a massive Rs 15,000-18,000-crore investment in the next two-years in power, retail, tyres, carbon black and transmission tower businesses. “We have lined up a capex of Rs 15,000-18,000-crore over the next two-years across our various businesses, but we have no plans to enter new ones,” RPG Group Chairman Harsh Goenka told PTI here.

Phillips Carbon Black has announced that due to a technical snag, the commissioning of a 30 MW co-generation power plant has been deferred.

The announcement does not specify how long startup will be delayed. This cogen unit is being installed at PCBL’s carbon black plant in Burdwan, Durgapur, India.

On Wednesday, January 21, Koppers Holdings Inc. lowered its 2008 annual profit guidance for growth in Adjusted EBITDA and Adjusted EPS. The revised guidance came in response to weaker fourth quarter end-market demand and certain product pricing. The company lowered guidance for growth in Adjusted EBITDA to 6-8% from 14-17%, and for growth in Adjusted EPS to 25-29% from 37-41%.

The company’s fourth quarter results have been negatively impacted by volatility in demand and pricing for certain company end-market products, combined with raw material costs that have negatively impacted margins. The volatility in product pricing relates primarily to products that are impacted by petroleum prices, including carbon black feedstocks and phthalic anhydride. Fourth quarter earnings have also been negatively impacted by incremental charges that total approximately $17 million. These charges include approximately $12 million for inventory write-downs to net realizable value and incremental LIFO charges.

[My emphasis]

Here is the press release.