HOUSTON—Orion Engineered Carbons has seen some impact from the COVID-19 pandemic, but expects even bigger effects in the second quarter.
Rubber carbon black volumes decreased by 11 percent year on year to 177,000 metric tons in the first three months of the year, due to "a sharp decline" in sales as a majority of tire and auto manufacturers idled plants beginning in mid-March.
Net sales decreased by 14.6 percent to $216.2 million, primarily due to lower volumes and passing through lower feedstock costs to customers. Base price increases partially offset those impacts.
Lower volumes also reflected the impact of "a deliberate commercial strategy" for the rubber segment to raise prices closer to reinvestment levels over volume, Orion said.
Gross profit fell 10.8 percent to $50.5 million due to lower volumes and negative foreign exchange translation. The effects were offset, in part, by base price increases and "favorable absorption due to inventory build," Orion said.
The segment's earnings (adjusted EBITDA) rose 1.7 percent to $35.8 million reflecting higher base prices and favorable absorption.
"Orion executed well in the first quarter, and we were on track for strong financial results until the latter half of March when many tire customer plants shut down," CEO Corning Painter said in a statement.
The rubber segment saw further declines in April, as the pandemic spread across Europe and Americas.
"In April, we estimate roughly 90 percent of North America's and 75 percent of Europe's tire factories were idled or severely curtailed with plans to slowly begin production at reduced rates in May and June," Painter said in a May 7 earnings call.
Automotive OEM manufacturing plants are tracking a similar schedule, Painter added.
"Against this backdrop, in April, Orion's plants operated in the mid-40s (utilization rates) in the Americas and Europe and in the mid-50s in Asia," Painter said.
During the month, rubber volumes demand declined 60 percent in the Americas and EMEA and 34 percent in Asia.
"Under these conditions, we operate the reactors in campaign mode: Up running to build inventory and then idling the reactors while we continue to ship," Painter said. "We have had to lay off employees at one location so far."