Gearing up for growth: Plant purchase positions Cabot to serve lithium-ion battery sector

TIANJIN, China—It's hard to compete with China's growth potential.

So when it comes to growing in China's carbon black market, Cabot Corp. is determined to not only compete, but be the competition that's hard to keep pace with.

"An important part of Cabot's leadership over the years has been our development of the China market," said Jeff Zhu, president of Performance Additives, and senior vice president and president of the Asia-Pacific Region. "China is the second largest economy in the world and a market where approximately 50 percent of the world's chemicals are produced. China also makes almost 40 percent of the world's tires, 50 percent of the world's silicones and is the largest market for lithium-ion batteries. These are key end markets for us, and one simply must be there to grow and be a true global leader."

The Boston-based carbon black maker took another step toward its global leadership goals with the acquisition of a former Tokai Carbon facility in Tianjin, a move that will boost production of conductive carbon blacks for lithium-ion batteries.

The $9 million deal first announced Nov. 15 was finalized March 1 and includes the former Tokai facility as well as an existing base of customers.

Ultimately, the Chinese market is essential to Cabot's growth globally. It's also a region where Cabot feels it has established a well-regarded reputation for quality and sustainability, developing relationships with key clients. Those are factors that Cabot believes will position it to take advantage of the region's projected growth, particularly when it comes to lithium-ion batteries.

"China has the largest new electric vehicle market in the world today and will be growing rapidly over the next decade. There is a strong need for high-performance conductive carbon additives to support this growth," said Shen Yi, vice president and general manager for Battery Materials. " ... Provided the increased logistic challenges around the global market, it has become more important than ever to build the local supply chain to serve customers."

The newly acquired Tianjin plant isn't outfitted to manufacture the conductive carbon black needed for battery materials just yet. The facility, which has an annual capacity of 50,000 metric tons of carbon black for tire and industrial rubber products, will see equipment upgrades that allow for the needed conductive carbon black production.

Cabot didn't disclose how much it would invest in the facility upgrades, nor did it specify the projected capacity at the plant once the upgrades are finished. Cabot, however, did emphasize that all of its customers—including those taken on in the Tokai plant acquisition—will continue to see uninterrupted service while it works to bring conductive carbon black capacity online by 2024.

"Cabot's manufacturing capabilities and technology allows for flexible production, and there will be additional capacity in our China network from our recent Xuzhou investments, as well as further debottlenecking on our existing assets that we will use to rebalance our production," Zhu said. "The gradual conversion allows us to manage and align capacity from throughout our network to meet both the needs of our tire and industrial rubber product customers as well as meet growing demand in our Battery Materials business."

In addition to addressing the manufacturing capabilities at the new facility, Cabot intends to improve the facility's environmental footprint.

"We will also invest in advanced environmental controls to continue to operate responsibly and in compliance with local regulations, while actively working to reduce our environmental impact," Zhu said.

Grandview Research expects the global lithium-ion battery market to reach $216.5 billion by 2028, representing a CAGR of about 19 percent from the 2020 baseline.

And according to Grandview Research, the lion's share of that growth is expected in the Asia-Pacific region. In 2020, for instance, the Asia-Pacific lithium-ion battery market accounted for 46.6 percent of the global market share. And it doesn't look to be relinquishing its stake any time soon, the analysis firm noted in a release.

In China, specifically, "growing government subsidies in EVs is expected to create an enormous market potential over the projected period," according to Grandview Research.

"We believe our Battery Materials solutions has the greatest potential for growth," Zhu said. "In Q1 fiscal 2022, our volume growth for battery materials increased by 58 percent year-over-year, and it is projected that our EBITDA for 2022 will be $25 million to $35 million."

It's that kind of growth that makes the Tokai acquisition so important. It's a keystone in Cabot's plan to capture a larger share of the market with a focus on high-growth areas—in this case, supplying the lithium-ion battery market.

But it's also just one piece of the larger, strategic puzzle.

Cabot purchased Nippon's 3-year-old carbon black plant in Pizhou, China, in 2018. That facility—which also saw technical upgrades—had a capacity for 50,000 tons per year of carbon black product.

The $115 million acquisition of Shenzhen Sanshun Nano New Materials, finalized in April 2020, also better-positioned Cabot to serve the growing EV battery market.

"Our M&A strategy focuses on bolt-on acquisitions that strengthen our existing business positions to support future growth and drive long-term profitability," Zhu said. "Our investment criteria are for growth and margin-enhancing opportunities that are accretive and strengthen our leadership positions in our businesses."

And when it came to the acquisition of the Tokai facility, location mattered, too.

The newly acquired Tokai plant sits just two miles from an existing Cabot facility. The proximity allows Cabot to leverage technical and technological resources in efficient and effective ways.

"Our Cabot Tianjin plant has a credible reputation in the local community as a responsible corporate citizen, where we can leverage the learnings to lead our new site upgrade projects and ensure that the changes are in compliance with local regulations," Yi said. "In addition, the Cabot Tianjin plant is one of our best performing plants around the globe and has a strong talent pool that enables us to capitalize on synergies and share knowledge and resources between plants."