China’s carbon black profits plummeted in 2009 and the industry needs to take drastic measures to secure a more prosperous future, including the elimination of existing and the prevention of new uneconomically smaller production facilities, according to Fan Ruxin, China Chemical Reporter

The global financial crisis had a huge impact on the carbon black sector in China. But in 2009, stimulated by policies promoting domestic demand, the carbon black market recovered somewhat, and both output and sales were recorded to be higher than for the same period of 2008.

Nevertheless, the overall performance of the sector has declined even further. The total profit of the carbon black sector from January to May 2009 was 120.4% lower than the same period of 2008. The total profit from January to April was 144.9% lower than the same period for 2008.

Factors affecting the market

• Capacity surplus

The average operating rate of carbon black producers in China has been around 70% each year since 2002, much lower than the 90% operating rate in some foreign countries. The carbon black capacity in China was 3.59Mt/a in 2008 (the capacity of wet-process granulation accounting for 90%), but the average operating rate was only 68%.

Due to the constant construction and expansion of carbon black projects, China's capacity is already in serious surplus. Carbon black price competition domestically is getting fiercer, and enterprises' financial performance is down.

• Feedstock oils supply/demand and price fluctuation

The cost of feedstock oils for producing carbon black accounts for 85% of the production cost of carbon black. Due to price fluctuations of feedstock oils, the price of carbon black has seen considerable ups and downs in recent years. The sale price of carbon black cannot match the price of feedstock oils in the same period, and carbon black producers are unable to make an accurate projection of the price of feedstock oils. As a result, carbon black producers have no pricing right in either the raw material purchase market or the product sales market. Operational risks in enterprises are therefore increased.

China eliminated the export rebate of 13% for carbon black in June 2007. Foreign enterprises use FCC (fluid catalytic cracking) clarified oil as a raw material to produce carbon black.

With the crude oil price drop in the international market, the price difference between FCC clarified oil and coal tar in China has narrowed and the international market competitiveness of carbon black produced in China has been greatly weakened. Besides, the USA’s decision to impose special protectionist tariffs on Chinese-made tyres imported into the USA will have serious impacts on the tyre industry in China and lead to lower profits in the carbon black enterprises.

Development orientation of the sector:

• Increase technical input

Some large carbon black producers in China have already reached an internationally advanced level in both environmental protection and enterprise management. Investment in technical upgrades is however, seriously inadequate. Most capital in enterprises is used for capacity expansion. Research and development in China for carbon black still lags behind and there is a considerable deficiency in quality compared with international brands. Enterprises that are capable should invest in technological R&D; develop high-performance carbon black that can improve the quality of tires and other products, with low rolling resistance; develop new varieties of the pigment for automotive rubber components as well as varieties of pigment and conductive carbon black with better performance to increase the products’ added value.

• Adjust industrial mix

The operating rate of China's carbon black sector is low but still expansion projects are being launched. The sector should consider increasing the requirements on the scale of new carbon black producers and production units and eliminate uneconomically small units and firms. Industrial policies for carbon black have clearly defined the following:

1) Avoid the establishment of new carbon black producers with a scale below 50,000t/a. Avoid also the construction of carbon black production units with a capacity below 20,000t/a (including dry-process granulation and wet-process granulation).

(2) Eliminate, within a prescribed time, all carbon black producers with a total scale below 50,000t/a, outdated technology and equipment, high energy consumption and excessive pollutant discharge.

(3) Eliminate immediately all dry-process granulation production units with a capacity below 15000t/a.

(4) Establish two-three carbon black groups that are composed of domestic carbon black producers, have a scale of around 300,000t/a and can compete with multinationals.

Source: China Chemical Reporter, www.ccr.com.cn/