Tyre Asia – May-June 2018

28 Tyre Asia April/May 2018

PERSPECTIVE

Up to about 2016, the global supply-

demand situation for carbon black was

balanced, or slightly in over-supply.

As we move into the middle of 2018,

the world carbon black supply-demand

balance is getting tight. Toward the

end of this year, and into 2019, that

tightness is likely to move to shortages

and allocations

CArBoN BlACK

CrISIS looMS

David Shaw

By David Shaw*

I

’m writing this from the Carbon Black

conference in Chengdu, China. It’s not

only India that is suffering from an

imbalance of supply and demand in

carbon black. The aim of this column is to

trace the origins of this developing situation

and discuss how it might be resolved.

As with so many difficult situations, there

are multiple causes. Very rarely does a single

event lead to such a significant imbalance of

supply and demand; its often three or four

things happening together that lead to such

difficulties, and that is certainly the case in

the current shortages of carbon black.

In this case, there are environmental

constraints in the United States and China

and India; these have led to a reluctance

to invest in new capacity, and indeed some

reductions in capacity. Meanwhile, the global

tire industry has been increasing output in

almost every region of the world with special

emphasis on India, with a glut of new radial

truck tire factories.

And finally, carbon black makers appear

to have taken the decision to prefer their

customers in the tire industry over the

smaller players in the non-tire segment. As

one senior executive put it, “can you imagine

the reaction from a top-3 tire maker, if we

told them that we could not deliver their full

order volume, because we have a local shoe

maker who needs the carbon black?”

Globally, according to Paul Ita of Notch

Consulting– a leading analyst of the carbon

black business – capacity for carbon black

declined in 2017. That is pretty much a world

first. In reality, the world needs roughly

400kt of new capacity each year to cope with

increasing demand.

Taking 2016, 2017 and projections for 2018

together, around 334kt of new capacity will

be added around the world. At the same time,

a little over 200kt of annual capacity was

taken out, leading to a net gain of just 120kt,

when additional capacity according to the

trendline should have been around 1200kt in

that period.

Part of the reason for the lack of new

capacity has been environmental constraints.

In China up to 1000kt of capacity has been

taken out as smaller suppliers decide it is

not worth continuing in business in the face

of strict environmental controls. Much of

that has been replaced with modern, clean

capacity.

In the United States the five main carbon

black makers have agreed to a settlement

with the Environmental Protection Agency

(EPA) to pay almost USD500mn for

environmental upgrades and fines. This cost

will not result in any new capacity In fact, the

EPA rules mean it is now virtually impossible

to add further capacity in the U.S. The EU

also has strict environmental rules making it

virtually impossible to add new capacity in

the region.