Rubber applications are growing globally due to growth in automotive ownership and industrial production. However, a combination of global demand growth and limited capacity expansion in carbon black (CB) is leading to tighter industry utilization rates globally, says Toon Howe Tan, Vice President & Regional Director Asia Pacific at Cabot Corporation.
In an interview to Rubber Asia, he says that Cabot Corporation has the No 1 position in the carbon black industry in terms of both capacity and sales, and the proposed expansion of its global capacity by about 15% over the next few years will serve the increasing carbon black demand in Southeast Asia which is growing at 4 – 5% per year. EXCERPTS:
What are the factors driving the growth of the rubber chemicals market in the world?
Rubber applications are growing globally due to automotive ownership growth and industrial production growth. Much of this activity is occurring in developing markets, with specific focus on Asia. Technology development is creating pockets of opportunity that are around new applications with a lot of activity occurring in the sustainable mobility space.
What are the new applications of rubber chemicals? How far has the expansion of end-use market aided the growth of the rubber chemicals industry?
With emerging trends such as vehicle light weighting, smart technologies and sustainability, our customers are under increasing pressure to deliver more sustainable products with greater durability and improved performance, which our solutions are enabling. At the same time, with environmental pressures, we’re seeing a consolidation of the industry. Given our 135-year legacy with carbon black, and our technical expertise in carbon black particle manipulation, we’re taking advantage of the opportunity to develop very deliberate downstream formulation positions, such as our elastomer composites. Playing in this space allows us to use our expertise in carbon black to develop technologies that offer better carbon black dispersion, which in turn, enables significantly better performance in rubber applications.
What is the demand-supply position of rubber chemicals?
The volume of rubber applications grows largely in line with GDP, or about 2-3% globally per year. Growth in Asia is about twice the global average. On the supply side, capacity expansion by the carbon black industry lags behind demand growth. In China, where most of the new carbon black capacity has been added over the prior decade, increased air emission regulations, in combination with higher feedstock costs, have dramatically slowed down the pace of expansion and have even caused closures of some of the smaller players. The combination of global demand growth and limited capacity expansion is leading to tighter industry utilization rates globally. Cabot has the No. 1 position in terms of both capacity and sales.
Since the year 2000, China’s share of tyre production has gone from 8% to 35%. This transformation drove a fundamental realignment of the carbon black value chain, and was destabilizing for the industry, especially for incumbent players that had to invest for growth and restructure in shrinking regions. Many companies would have been left behind by this level of structural shift, but Cabot has navigated to an advantage position. Our view now is that the tyre value chain has found a new equilibrium, and we are positioned for growth.
Is there still a serious shortage of carbon black? How’s it affecting the industry?
Global utilization rates of carbon black have increased due to steady customer demand, combined with limited supply-side expansions. Today, global utilization rates are approximately in the low-80’s, with some markets being tighter than others. At Cabot, we see our utilization rates in the high 80’s-low 90’s. Cabot has the No. 1 position in terms of both capacity and sales. We have announced plans to increase our global capacity by about 15% over the next few years through a combination of plant expansion, operational improvements and de-bottlenecking projects across the network. This includes the addition of approximately 160,000 metric tonnes of capacity through an expansion at our facility in Cilegon, Indonesia. The new capacity will serve the increasing carbon black demand in South-east Asia, which is growing at four to five per cent per year. We’ve also announced the acquisition of NSCC Carbon in Pizhou, Jiangsu Province, China, part of a de-bottlenecking project to support Cabot’s specialty carbons product line, opening up reinforcement materials capacity in our existing Xingtai and Tianjin facilities.
Many countries are now adopting stringent regulations to check the environmental pollution caused by the rubber chemical industry. How could it affect the industry’s future?
Sustainability is no longer a nice to have, it is mandatory. Increasingly, we are driven to think holistically about our footprint and find ways to break the trade-offs between the very clear benefits that our materials bring, and the long-term life cycle costs of our products. This has never been clearer than it is today in China. Today, the primary social imperative in China is environmental performance and long-term sustainability. Cabot is uniquely positioned for success amid the growing sustainability trend – we are the first chemical company in China to receive Responsible Care 14001 certification. Our China facilities are among the cleanest carbon black manufacturing sites in the world. We have implemented state-of-the-art emission control technology at our facilities to decrease our environmental impact, and we continue to invest to remain a leader as standards become ever more stringent. As a result, when the Chinese Government mandated manufacturing shutdowns last winter, they allowed Cabot’s plants to continue operations, which was not the case for many of our competitors.
In 2017, for the second consecutive year, we achieved a gold rating from EcoVadis for our performance in sustainability. And we were recently recognized by Corporate Responsibility Magazine as one of the top 100 corporate citizens.
What is your forecast for the rubber chemicals market over the next decade?
South Asia is poised for growth in the coming decade in both India and ASEAN, which is growing at roughly 4 – 5% annually. The region has been short of in-region capacity since 2010, and demand continues to grow steadily as more tyre producers announce and execute expansion projects in the region, including Indonesia, Thailand, Vietnam and Malaysia. As part of Cabot’s expansion plans, including the addition of approximately 160,000 metric tonnes of capacity through an expansion at our facility in Cilegon, Indonesia, we will serve the increasing carbon black demand throughout Southeast Asia.
How’s Cabot Corporation positioned in the rubber chemicals industry in terms of sales turnover, range of products, market share etc.? What are your expansion plans?
We’re No. 1 globally in rubber carbon black with an unmatched global footprint. The business has significantly improved its structural profitability. And today, EBITDA margins are of very high quality at 19%, and substantially ahead of our peers in this business. Today, about 45% of our reinforcement materials capacity is in the Asia-Pacific region, and we are viewed as the leader in China & Japan.
We are well positioned to leverage our global footprint to maintain sourcing and manufacturing flexibility, which provides global product sourcing options for our customers and allows us to use alternative and more competitive feed stocks.
We also recently announced expansion plans that would increase our capacity by more than 300,000 metric tonnes. This includes the addition of approximately 160,000 metric tonnes of capacity through an expansion at our facility in Cilegon, Indonesia. The new capacity will serve the increasing carbon black demand in South-east Asia, which is growing at 4 to 5 % per year. Cabot anticipates that product from this expansion will be available for sale starting in late 2020 or early 2021.
We’ve also announced an acquisition of NSCC Carbon in Pizhou, Jiangsu Province, China, part of a de-bottlenecking project to support Cabot’s specialty carbons product line and therefore open up reinforcement materials capacity in our existing Xingtai and Tianjin facilities.
We continually monitor the market conditions and adjust accordingly to ensure we continue to meet the needs of our customers.