Carbon Black Sales - Description, Market Prospects, Industry...
Industry Snapshot
Carbon black is essentially an oil by-product used to strengthen rubber. It is made by shooting a hot mist of oil particles into a flame, a costly process that has limited the number of competitors in the industry. Carbon black is a general name for various trade name products such as acetylene black, attributed black, channel black, flame black, furnace black, lamp black, and thermal black. Carbon black production requires large amounts of heat. In addition to its primary use in tires, the powdery reinforcing agent makes inks and other everyday products.
In 2000, U.S. carbon black shipments were worth more than $1 billion, and carbon black sold at prices between 28 and 46 cents per pound, depending on the grade. The vast majority of carbon black produced in the United States in the late 1990s was consumed by rubber and tire manufacturing companies.
Organization and Structure
Carbon black is essentially a homogenous product with many trade names. It is essentially an oil by-product used to make tires, inks, and other products. The principal economic industries responsible for carbon black were domestic manufacturing, which purchased nearly 95 percent of the industry’s shipments. A 1998 ranking of purchased carbon black output found these industries responsible for carbon black usage: tires and inner tubes, which purchased approximately 50 percent of the industry’s shipments; industrial applications, which used 15 percent of the carbon black manufactured in the United States; and specialty applications, such as wiring, plastics, and coatings, which used 10 percent.
In the late 1990s, 22 establishments produced carbon black, employing 1,860 workers in 2000. The U.S. carbon black industry was centered primarily in southern states. Eight companies operated out of Texas, while five were based in Louisiana.
Background and Development
The Cabot family was involved in carbon black production from the industry’s outset. 1882, Godfrey Cabot built a carbon black plant in Buffalo Mills, Pennsylvania. At the time, carbon black was made by impinging a gas flame against steel. After World War I, it was discovered that carbon black had properties for reinforcing rubber products. This innovation fueled the industry’s growth.
Carbon black was used as a printing ink as early as 1864, and it was still employed in this sector in the late 1990s. The most revolutionary application was developed for the rubber industry, which discovered that carbon black made tires tougher. In 1920, the rubber industry consumed only 40 percent of the carbon black produced. Today, the rubber industry is the largest market for carbon black.
By 1972, carbon black prices were deteriorating because production capacity was more significant than production. Production was three billion pounds per year, while production capacity was about four billion pounds per year. In addition, the cutback in gasoline usage that followed the oil embargo in 1973 took a heavy toll on carbon black demand. At that time, 95 percent of carbon black use was associated with automobile applications; 70 percent went into tire production alone. Higher costs also had a detrimental effect on the industry. As carbon black prices increased, demand for the industry’s products was reduced. Carbon black production capacity fell from an estimated 4.21 billion pounds in 1979 to 3.38 billion pounds in 1981. The decline in 1978 and 1979 mirrored the downturn in the U.S. automotive industry, but export business buoyed the sector.
By the 1980s, with four or five years of increasing prices behind it, relative stability had returned to the carbon black market. Prices for carbon black generally followed oil prices. As oil prices stabilized, so did prices for carbon black.
Industry shipments increased 21 percent from $570 million in 1987 to $692 million in 1990. This number declined to a decade low of $604 million in 1991 but continually rose to $800 million by the mid-1990s. Despite the increase in carbon black shipments, leading producers in the fiercely competitive and sagging U.S. auto industry compelled producers to enter overseas markets. In the early 1990s, U.S. producers established operations in Europe and Japan. The leading U.S. producer was Cabot Corporation, with total mid-1990s sales of $1.69 billion. It recorded negligible profits in the United States but generated huge profits abroad.
Leading companies, including Cabot Corporation, expanded into international markets in the early 1990s. In 1992, Cabot opened a new carbon black plant, Cabot Kashima, in Kashima, Japan, which produced special grades of carbon black. Many in the industry were also expanding into the budding capitalist societies of Eastern Europe. Also
, during this time of exploration into international markets, new low-cost
production processes were developed, and recycling efforts in the rubber and tire industries were encouraged. All these improvements within the carbon black industry were implemented to enable U.S. producers to compete against international export companies.
As the carbon black industry entered the mid-1990s, U.S. producers faced stiff competition from traditionally import-oriented countries and sought new markets in developing economies such as China. The demand for carbon black in China was expected to grow 6.6 percent yearly during the 1990s. U.S. consumption of carbon black was also projected to increase an average of 2.7 percent annually to $640 million in 1997. This projection was predicated on the gradual recovery of the auto industry.
By March 1995, U.S. demand for carbon black caused a 10 percent increase in price. This dramatic increase was not to be repeated the following year, however. Instead, 1996 operating rates were high, and pricing was weak as carbon black sold for 28 to 50 cents per pound. Industry leaders attempted to raise prices by 5 percent but were unsuccessful. Tire manufacturers, who purchased 50 percent of U.S.-produced carbon black, resisted the price increase.
Current Conditions
Despite tire manufacturers' protestations, carbon black prices rose in the late 1990s
as demand for the commodity outstripped supply. The automotive sector, which consumed carbon black for tires, boomed in the bull market of the late 1990s. Moreover, the growing popularity of sport utility vehicles—which used bigger tires that wore out faster than on cars—fueled demand for carbon black. Carbon black manufacturers also enjoyed low crude oil prices, which kept production costs to a minimum.
However, in 1999, rising crude oil prices impacted the carbon black market. While tire demand remained strong in North America, a surge of cheaper import tires undercut carbon black prices. Tires originating in Korea and Brazil claimed an increasing share of the market.
Carbon black industry shipments grew from $949 million in 1999 to $1.07 billion in 2000. The cost of materials over that period rose from $402 million to $533 million.
Industry Leaders
The Boston, Massachusetts-based Cabot Corporation was the world’s largest producer of carbon black in 1998, producing some 995 million pounds. The Cabot Corporation was a conglomeration of specialty metals, chemical, and energy businesses. When the carbon black market staggered in the early 1980s, Cabot expanded into fields such as high-technology ceramics. Cabot also effectively controlled the slow-growth carbon black market segment through restructuring efforts, including drastic reductions in unit costs to counter the heavy fixed capital investment required for carbon black production.
In 1996, Cabot bought a plant in Merak, Indonesia. The plant was expected to double its capacity to 60,000 metric tons annually. Also, in 1996, Cabot instituted a system that measured the performance of its 71 carbon black plants and conveyed the information to all plant managers. Cabot could stay ahead of competitors and quadruple earnings per share through cutting costs, modernization, and restructuring. In 1997, the company introduced a new line of carbon black pigments, which helped it remain at the forefront of the industry. Cabot’s efforts were rewarded. Sales in 1998 were approximately $1.7 billion, and the company employed 4,800 workers.
Columbian Chemicals Co. of Atlanta, Georgia, was the second-largest producer of carbon black. In 1996, Columbian underwent a 25 percent expansion that increased its global capacity by 180,000 pounds. This restructuring cost approximately $60 million. The company operated 11 plants in 8 countries. Columbian’s total sales were $260 million in 1998, and it employed 1,400 people.
Another major industry player was Degussa’s Carbon Black Division of Ridgefield Park, New Jersey, with $150 million in sales and 300 employees. In 1998, Degussa moved aggressively to capture a greater share of the Asian market for carbon black by acquiring the carbon black division of LG Chemical in South Korea. Other leading carbon black producers included JM Huber Corporation’s Engineered Carbons Division (bought by Gantrade Corporation in 1995) of Borger, Texas, and Norit Americas Inc. of Atlanta, Georgia.
Workforce
In 2000, approximately 1,860 workers were employed in the carbon black industry. Of this total number, 1,304 were production workers who earned an average wage of $24.79 per hour. On average, these production employees worked
46 hours each week.
The U.S. Bureau of Labor Statistics forecast that most of the industry’s occupational categories were expected to increase until 2005, reflecting the projected growth in demand for the industry’s products. However, many occupations expected to grow most rapidly were nonproduction jobs, such as sales workers and highly skilled professional positions.
Research and Technology
Degussa AG, an industry leader, has researched the effects of carbon black concerning workplace exposure and found it safe. This study was completed after reports from the International Agency for Research on Cancer (IARC) of the World Health Organization (WHO) indicated that carbon black could cause tumors in rats. IARC found that long-term exposure to delicate dust clouds, including carbon black, could cause lung cancer and respiratory diseases. They wanted to reclassify carbon black as a carcinogen. Degussa countered this with data showing that only rats exposed to massive dust were affected. They concluded that no evidence showed that mice, hamsters, or humans were significantly bothered by the dust.
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