LUXEMBOURG—Orion Engineered Carbons has noted a marked improvement in its rubber carbon blacks business, which has been under pressure for the past few quarters, CEO Jack Clem said in a Nov. 4 conference call about the company's third quarter 2016 results.
In the third quarter, rubber black volumes at Orion grew 7.2 percent to 217,00 metric tons due mainly to contributions from its newly acquired Chinese business in Qingdao, Shandong. Sales fell 9.9 percent to $179 million on lower oil prices and resulting pass-through of lower feedstock cost to customers with indexed pricing agreements.
However, third quarter earnings (adjusted EBITDA) in Orion's rubber carbon blacks business increased by an impressive 11 percent, or $2.4 million, the company also reported.
Reviewing the three months to Sept. 30, Clem said: “European demand remains stable, supported by auto build and recovering sales of replacement tires. Combined sales in the other regions were flat, as weakness in the replacement tire demand, particularly in the U.S., was offset by stronger sales in the other regions.”
Pointing to “reason for optimism” over the remainder of the year, Clem reported that surcharges in Europe had came into full effect in the three months to Sept. 30, while competitive pressures had eased with a decline in Russian and Chinese carbon black imports into Orion's markets.
“We were successful in implementing feedstock surcharges in Europe, partially offsetting the feedstock differential headwind experienced in 2015 and the first half of 2016,” Clem said, adding that the surcharges had affected a “large majority” of Orion's tire industry customers.
Orion also expects to benefit from the rationalization of its European production network, with the closure of its 50,000 metric ton per year plant in Ambes, France by the year-end.
“We will not be able to replace all of the volume… We have reorganized some of the portfolio mix as we go into 2017, moving some of the materials to other facilities,” Clem said about the plant closure. “But there will be some of the lower-price… marginal material that we will not be able to make up in the production system in Europe.”
Clem went on to comment that most of Orion's facilities in Europe were currently “very, very close to maximum utilization.”
In Asia, meanwhile, Orion is concentrating production in Korea at its Yeosu site: repurposing a tire-rubber carbon black line there and adding production from its plant in Bupyeong, which is to close by mid-2018.
The consolidation, said Clem, will help Orion to “effectively serve the domestic Korean market and other Asia-Pacific customers while supplementing supply to the rest of the world.
“This and a shift to capacity to specialty and technically demanding rubber products further supports our strategy of expanding our leadership and offering higher value products.”
With regard to China, Clem said that the market was being impacted both by US tariffs on tires and increasing environmental standards, which he said were “pushing some of the marginal players out at this point.”
In response, he said, Orion is focusing more on the mechanical rubber goods and specialty product areas.