Zochem keeps furnaces lit amidst uncertainty

DICKSON, Tenn.—"Someone has to light the furnace."

While many companies in non-essential rubber and associated industries temporarily have been shuttered due to the coronavirus pandemic, one of the largest suppliers of zinc oxide in North America continues its operations amidst market uncertainty and concern for the health of its 130 employees.

Zochem L.L.C. said it is producing the compound—a raw material that is essential to an incredible array of industries—at full capacity at its two sites in Brampton, Ontario, and Dickson, even though a majority of its employees now are working from home.

But not everyone.

"We have daily meetings, checking in with our team and their morale," said Ed Smith, vice president of sales and marketing and co-owner of Zochem. "The vast majority of our employees are working from home, but someone has to light the furnace. You can't run a plant from home completely.

"Those running the furnaces and who work in testing and packaging have to work. But we train weekly on what to do, and no one in our plants has come down with the virus."

Smith said no layoffs or slowdowns have occurred at Zochem, and none are planned. The company has enacted safety policies that mirror federal and state regulations, as well as Centers for Disease Control and Prevention guidelines.

Policies include social distancing at work, wearing protective gear, eliminating outsider visits and non-essential business travel, and telecommuting when possible for staff workers, Smith said. In addition, the company is versed in proper hygiene and respiratory protection, policies that have become more robust since the pandemic, Smith said.

"And following that, we commit to doing our part to help keep America running," Smith said.

The zinc industry comprises a complex web of production, processing and end-use manufacturing, Smith said, and as such Zochem said it will look to balance a downward trend in the tire industry with upticks in agriculture, packaging and medical markets.

Smith said Zochem has been able to maintain a solid financial bottom line thus far during the pandemic by keeping debt levels down and managing inventory of its raw materials.

But uncertainties abound.

"Companies like Zochem are at the start of both the food chain and industrial processes," Smith said. "Even so, it wouldn't take long for shortages to occur if we stopped production."

There is no question, Smith said, that the company has "taken a hit" to its bottom line with the shutdowns in the tire market, as the "Big 3" of Michelin, Goodyear and Bridgestone temporarily have shuttered numerous facilities around the world.

"There is no question tire has taken a pretty big hit," Smith said, adding that Zochem saw about a 30 percent drop in April sales in that sector.

And tangential industries to the automotive space, those that also depend on zinc oxide such as producers of motor oil and transmission fluid, also have been negatively impacted.

"All tire is saying they are coming back on line, but we have to make sure we can react to customer demand," Smith said. "I suspect that when they do come back, they are going to come back pretty quickly."

Bridgestone only recently reopened tire plants in Spain and Russia, and there have been rumblings that other tire makers are looking to start production once again, especially in European locations.

Smith said Zochem's energy and oil and gas markets remain flat, though he added he expects the latter to rebound soon with OPEC's announcement that it would cut oil production in the midst of cascading global demand.

But because zinc oxide remains one of the most ubiquitous raw materials across an array of industries, the company has been buoyed by increased sales outside of the tire, energy, and oil and gas markets—namely those in agriculture, chemical, packaging and pharmaceutical spaces.

"All other markets are doing rather well," Smith said.

While about 40 percent of the total zinc oxide market (from all producers of zinc oxide) in North America goes toward the rubber tire industry, the compound also can be found in dental care, sunscreens, fertilizers, livestock feeds, over-the-counter flu remedies, vitamins, tile glazes, paints, food additives and even electronics.

"The fastest growing market for us is in fertilizers and animal feed," Smith said. "There is a growing population worldwide, and a reduced amount of land on which to raise crops and cattle. That's why fertilizers are crucial—allowing farmers the ability to get more bushels out of an acre."

As a feedstock to the chemical market, zinc oxide also is used in pharmaceuticals, another growing area for Zochem.

"Pharmaceuticals is up quite a bit, and not just considering things that are related to people boosting their immune systems, but in the production of gowns, masks and other items in the medical industry related to the pandemic," Smith said.

And as agriculture and medical goes, so goes packaging.

"We're getting a bit more definition there and seeing a significant uptick for pill bottles, packaging for food and medical products," he said. "Packaging for customers is way, way up. These are higher margin markets for us.

"It really is fascinating how many applications that zinc oxide has."

Even with strong trends elsewhere, uncertainty in the automotive and tire spaces means Zochem has to keep raw materials on hand to be ready to respond to demand.

Smith said most of Zochem's zinc originates from mines outside the continent.

"North America is fairly zinc-deficient," he said. "Most comes from mines in Russia, South America, with some from Australia. Most is imported.

"But we have no issue with our raw material, and we are trying to keep extra raw material and finished goods on the floor to meet demand, as it is so unpredictable right now."

Zinc oxide is produced by the French process, Smith said, an indirect process whereby zinc metal is placed in a solid form into huge furnaces, and heated to a molten form. The molten zinc then is boiled in a different furnace, and the boiling zinc ultimately is introduced to ambient air.

At that point the zinc self-ignites and forms zinc oxide, a fine white powder that can be distributed as is, or in pellet form.

"The biggest thing we need are accurate forecasts from our customers," Smith said. "All the markets besides tire are getting good forecasts, but I just don't think our customers know for sure.

"We are still running the furnaces at full capacity. But if this goes through May or June, who knows? We may have to cut production capacity. There is just so much uncertainty right now."

Zochem was founded in 1933 in Brampton. In September 2017 the company was acquired by Zinc Oxide L.L.C. of Dickson, creating the one of the largest suppliers of zinc oxide in North America, according to a previous Rubber & Plastics News report.

While the Tennessee plant maintains the largest square footage, roughly two-thirds of production occurs at the Brampton plant, Smith said.

"As the crisis evolves in North America, Zochem will continue to assess and adjust as needed," the company said in a statement. "At this time, we do not expect any business or service disruptions, and maintain a commitment to working together during this difficult time. The company's sales and customer service representatives constantly receive updated information from management and are available to answer customer questions."