Orion eyes premium grades as carbon black market grows

KINGWOOD, Texas—Orion Engineered Carbons L.L.C. sees definite opportunities for growth in the carbon black industry, but it knows it is just as important to manage the uptick in demand properly.

Officials for the Kingwood-based firm cite studies that show the global carbon black market will grow from 4-5 percent a year between now and 2019. And with nearly 90 percent of carbon black output used in the rubber industry—with 70 percent going to tires alone—they know they need to ensure they target the firm's efforts both in terms of geography and product lines.

“It's an exciting time to be in the carbon black market,” said Jose Briones, Orion marketing manager for rubber in North America. “There is growth out there. There are technology trends out there as well. There is a shift from commodity to more specialized grades, so I think we see a very bright future ahead.”

From an overall demand growth standpoint, much of that comes from the economy, he said. That is reflected in the growth of automobile sales and tire unit shipments.

“You could argue we're coming out of the recession,” Briones said. “We monitor the sales of tires carefully, related to both car sales and the replacement tire market. We need to keep a close eye on the sales and the trends, and associated variables, like the number of miles driven.”

Orion said it is in good position to meet the increase in demand, having back-up supply capabilities in the event of supply interruptions or unexpected peaks in demand. It has 14 production facilities globally, operates four Applied Technical Centers, and has installed “Orion Design” reactors in two U.S. plants, with plans to install others in the U.S., Asia and South Africa.

But the shift to specialty grades of carbon black is related more to other issues. For tires, that means new Environmental Protection Agency testing on rolling resistance for tires that he said could lead to a shift in tire buying from car manufacturers.

In the case of mechanical rubber goods, there are more stringent demands for such things as automobile seals that likely will cause larger demand for what the firm calls the clean grades for the MRG market.

“This is not a new trend in Europe but now is happening in the U.S.,” Briones said, something that is not a strange occurrence. “Europeans tend to push for higher quality and higher performance. Then eventually those demands translate to U.S. demands.”

The Orion executive said the top thing tire companies still seek is improvements to rolling resistance.

Some of that likely was spurred, he said, by the EPA's statement in February that it will issue new guidelines for fuel economy testing. The new guidelines detail how vehicles should be prepared for testing, including the acceptable amount of tire wear and specifics on how the tires should be broken in.

The biggest change will come in the “coast down” test, where vehicles used to be sped to 70 mph and let come to a full stop. That number now will be 50 mph.

“Tires that used to perform well won't perform as well,” Briones said. “The EPA calculated numbers will shift and not in a good direction for car manufacturers.” That will put pressure on tire firms to develop tires that will perform better in the new testing, he said.

Orion, to help tire makers in this area, is introducing into North America its Ecorax grades designed to lower rolling resistance, he said. The grades already are being sold in Europe.

The problem, though, is that suppliers to the tire industry have to be conscious of the “magic triangle,” where durability, performance and rolling resistance must be balanced. “Typically you have to compromise, no matter what you do,” Briones said. “The key is understanding the market and trying to balance all variables to achieve the proper cost for your market segment.”

Another obstacle is the long time it takes to develop new tire products. “You have to predict well in advance what the trends will be in the marketplace, and then develop carbon black products that fit those markets, and then try to make that consistent with the tire development cycle,” he said.

The most fundamental item that carbon black producers must understand when producing mechanical rubber goods for such components as car seals is that the specifications for tolerance and cleanliness are more stringent than in tires. Again, Orion is taking some of its HS grades that have been available in Europe and started selling those in the U.S.

“It's just a growing trend, and those are products that allow the users to achieve much higher quality in the end use product, much lower levels of scrap and much better dimensional tolerances,” Briones said.

To market those HS grades in the U.S., Orion has assembled a case study showing that these materials will allow users to reduce the levels of scrap by enough to offset the higher cost very quickly, he said.

Growth in carbon black markets is forecast to be strong in the U.S., Europe and Asia but stable at best in Brazil and South Africa, according to Orion data.

Sales of rubber carbon black for parent firm Orion Engineered Carbon S.A. actually decreased 3.4 percent to about $690.6 million in 2014, though volume rose 1.3 percent to 787,700 metric tons, according to the company's annual report. The revenue drop was blamed on product mix, some price reductions in the Americas and impacts from currency exchange rates.

Two areas that also have seen a large rebound in auto production during the recovery have been Mexico and Canada. At the bottom of the recession, the two combined to produce just 3.2 million vehicles. By 2014, that total was 5.8 million, with 3.4 million coming from Mexico alone.

Mexico, particularly, has overtaken Canada and Brazil as a major hub for auto manufacturing. That already is translating to non-tire rubber goods makers setting up shop in Mexico, he said, and more tire production may eventually follow, he said.

“South America is in big economic trouble,” Briones said. “Brazil some years ago was one of the darling economies, but unfortunately they've hit the wall.”