EU ‘blacklists' Russia as carbon black supply lines settle

BRUSSELS—As the European Union eyes a complete ban on carbon black and synthetic rubber imports from Russia in July 2024, the continent continues to taper its dependence on the country for the critical materials.

In doing so, supply lines that were casualties of war-torn areas of Ukraine or cut off due to sanctions against Russia have no plans to be reopened.

"The most significant impact on supply chains (in Europe) occurred in 2022, but most supply chains have shifted to new sources and are secure again," Pedro Riveros, of Houston-based Orion S.A., told Rubber News Oct. 20.

Riveros is senior vice president and general manager for global rubber carbon black and the Americas for Orion, one of the major players in the extremely consolidated European carbon black market.

When Russia attacked Ukraine in February 2022, the EU imported more than 50 percent of all its carbon black—about 550,000 tons—from its eastern neighbor.

That dependence sits at less than 40 percent today, just three months away from the two-year mark of Russia's invasion and eight months away from the EU Council's ban on Russian carbon black and SR.

Overall, Russia still pushes about 700,000 metric tons of carbon black into the global rubber market annually, according to research firm ChemAnalyst.com.

"The war has led to an EU ban on Russian carbon black that starts next July," Riveros said. "Additionally, there is growing OEM concern with Russian content in the supply chain. This has led to a higher demand for locally sourced carbon black producers in Europe."

The biggest user of carbon black in the EU is Germany, which is where the vast majority of Europe's automotive production takes place.

Second in CB consumption is France, then Italy, according to ChemAnalyst.com.

"Since the start of the war, customers have been transitioning away from Russian raw materials, including carbon black," said Tom Miller, vice president and general manager of Cabot Corp.'s Global Tire division. "This transition is continuing with increased urgency as the sanctions deadline approaches in 2024."

With six carbon black manufacturing facilities across Europe, Orion is well-positioned to benefit from customers' increased dependence on European producers.

In February 2022, Orion opened a new production line in Ravenna, Italy, for specialty carbon black production.

The 25-kiloton manufacturing site for technical rubber carbon black is "mainly for the European market" and will offer customers "long-term and strategic solutions," according to Orion.

The company's largest carbon black plant is in Cologne, Germany. Orion also has sites in Berre-l'Etang, France; Malmo, Sweden; and Jaslo, Poland—its eastern-most plant.

In addition, Orion maintains a joint venture in Dortmund, Germany.

Other major carbon black producers in the European market include Cabot, Mitsubishi Chemical Corp., Omsk Carbon Group and Imersys Graphite and Carbon.

And as automotive production increases once again following the pandemic and subsequent destocking, the need for carbon black for tires will increase, according to Cabot's Miller.

Like many manufacturers, overbuying and inventory surplus took place with OEs, as well.

"We generally see carbon black demand increasing in 2024 with recovery of the OE market as well as the end of inventory destocking in replacement tire channels," Miller told Rubber News Oct. 19.

Cabot also is well-positioned for the predicted surge in European CB demand, estimated at about 5-percent CAGR over the next several years. Boston-based Cabot has four carbon black plants in Europe, two of which are ISCC Plus-certified.

The company maintains a "make-in-the-region, sell-in-the-region" approach, which it believes will deliver "the best customer experience" in light of the transitioning carbon black supply lines.

"There can be some exceptional cases, but this is our primary business model," Miller said.

Orion's Riveros said that while 2023 is expected to be a flat year, 2024 shows global promise for increased demand in both rubber blacks and specialty blacks.

Like Cabot's regional approach, all of the carbon black that Orion produces in Europe remains in Europe, Riveros said.

"We reported higher gross profit (in the second quarter of this year) and gross profit per ton for our rubber business that typically operates under yearly agreements in regions such as Europe and the U.S.," he said. "We did see a volume decrease versus 2Q 2022. This was driven by destocking and deferment in EMEA and the Americas."

In the U.S., owners of passenger cars and light trucks are driving more than they did last year, Riveros said.

"They are also deferring their purchases of replacement tires," he said. "These tires are getting worn, and they will need to be replaced."

Riveros noted that Orion does not yet have solid data on the European CB/automotive market, given the volatility in pricing and supply caused by the war in Ukraine.

"But we believe the picture there is similar," he said. "We expect end customers to defer purchases until the start of 2024. And we expected manufacturers to take extended holidays over the recent summer and the upcoming winter."

Neither Orion nor Cabot are dependent upon Russia or Ukraine for feedstocks to run their European plants.

Typically, EU carbon black producers use slurry oil or natural gas for a plant's foundational energy, and as such some European CB suppliers are dependent on Russian natural gas.

"Customers have long recognized the value of Cabot's supply reliability, production capabilities in region and high service level," Miller said. "The value (that) customers see from this has only increased in recent years, not only due to the war in Ukraine but also through the COVID disruptions of the past three years."

The effects of the EU's upcoming ban on Russian carbon blacks are not expected to be exclusive to the continent itself, as other avenues for carbon black supply present themselves in North America.

That includes Cancarb of Medicine Hat, Alberta, a producer of thermal carbon black. Cancarb does not have any European locations.

"Currently, the market has settled down a bit from the initial confusion created at the onset of the Russia/Ukraine conflict," Brad Thompson, director of global sales and marketing for Cancarb, told Rubber News. "Supply concerns early on led to some companies purchasing more than they needed ... and this oversupply is starting to normalize.

"The proposed sanctions on Russian carbon black set for 2024 will be the next potential market disruption as companies look to secure alternate sources of supply."

Black rubber contains between 40 and 70 percent carbon black, with tire manufacturing as the leading market for the material.

In southern Europe, some of the carbon black continues to be imported from Russia as new facilities go online.

However, the EU's 10th package of sanctions against Russia effectively will end all supply of Russian carbon black July 1, 2024.

In the meantime, quotas are in place that allow Russian imports of 562,973 metric tons of synthetic rubber and 752,475 tons of carbon black, totals based on historical import data prior to the war, a spokeswoman for the European Commission told Rubber News.

Indeed, Europe wants to lessen its reliance on Russian oil as well. Since oil is a necessary raw material for the creation of carbon black, this also could have an impact on supply, according to experts.

While it is impossible to predict how the sanctions will impact operations, many businesses are assessing the long-term risks of importing goods from the war-torn region.

"It is critical that the market be aware that we are monitoring developments given that firms in the EU may soon experience a constrained supply of carbon black," Thomas Sorensson, CEO of Enviro, told ChemAnalyst in November.

Enviro, a tire pyrolysis and recycling firm that produces recovered carbon black, earlier this year reported a spike in interest for rCB and tire pyrolysis oil from customers due to the Russian invasion.

This trend likely is ripe for the carbon black industry, driven by the effects of the war as well as upward trends in sustainability.

"Sustainability is extremely important to Cancarb. ... In addition to the utilization of our waste heat to produce clean electricity that helps power our city, we continue to explore multiple avenues on our journey toward carbon neutrality," Thompson said. "Our current EcoVadis Platinum rating is in large part a recognition of our continuous efforts on sustainability and corporate social responsibility."

However, the more sustainable CB options—methane pyrolysis, renewable CB, recyclable CB or circular CB—remain a hopeful but small percentage of total carbon black production.

They often are not a one-to-one, drop-in replacement, as sustainable options require a mass balance, or additive, approach to form a proper performance grade of rubber black.

Another remedy to a lagging carbon black supply in Europe is to increase imports from India and Saudi Arabia, according to industry experts.

In Al-Jubail, Saudi Arabia, is Kemya, a joint venture for carbon black production between Exxon, Sabic and Continental Carbon Corp.

"They have carbon black that can be exported to Europe," industry expert Martin von Wolfersdorff told Rubber News this year at the one-year mark of the war in Ukraine. "And the volumes are there in India as well."

While carbon black imports from these areas may not have the pricing volatility, they do come with freight premiums, which can be equally prohibitive, according to experts.