HILTON HEAD ISLAND, S.C.—The U.S. tire industry will start seeing shortages of carbon black as early as 2016 as carbon black producers face increasingly stringent environmental regulations, according to Gregory King, vice president of marketing for Sid Richardson Carbon Co.
Speaking at the 30th annual Clemson University Tire Industry Conference, Mr. King said pending U.S. Environmental Protection Agency (EPA) regulations could cause both increased costs and shuttered U.S. capacity in the carbon black industry. “There will be a shortage of carbon black starting in 2016, provided that everyone's expansion plans for tire production go forward as assumed,” Mr. King said.
“Starting in 2016, we're going to be out of balance.” He said he expects China will take up the slack in carbon black production left by the U.S. Mr. King based his projections on both the analysis and market model by Simon-Kucher & Partners and the capacity and demand estimates made by Notch Consulting Group.
Carbon black nameplate manufacturing capacity in the U.S. and Mexico stands at 4.63 billion pounds per year, Mr. King said. However, EPA efforts to control sulfur oxide and nitrogen oxide emissions from U.S. carbon black facilities likely will cause domestic capacity to fall to 4.11 billion pounds by 2020, according to Mr. King.
Projected demand for that year points to a production shortage of 465 million pounds. Among U.S. carbon black producers, Cabot Corp. already has settled with the EPA, according to Mr. King. Cabot has agreed to invest approximately $90 million in two U.S. carbon black plants, and to reduce sulfur oxide and nitrogen oxide emissions in the U.S. by 80 to 90 percent, he said.
The company will spend the next several years executing the agreement. Sid Richardson and other U.S. carbon black makers are cooperating willingly with the EPA in discussions on how to cut emissions, said Mr. King, adding: “We all want to do the right thing.”
While there are many ways to reduce emissions of nitrogen oxide and sulfur dioxide, those carbon black makers that can close U.S. plants in favor of imports—such as Cabot—will do so, he said. For Sid Richardson, closing U.S. plants is not an option, Mr. King said, but the company will face some difficulties in achieving the emissions reductions the EPA wants, he said.
“Controlling sulfur-oxide emissions is a matter of installing wet scrubbers,” he said. “We have two plants in west Texas, and we're not sure we can get enough water there to absorb all emissions. Maybe we could consider air preheating or other options, or find ways to use less oil.” In any case, the industry can expect an increase in production costs because of the operating cost components over and above the capital costs, Mr. King said.
Expect China to take up the slack in carbon black production left by the U.S., he said. “There are about 100 carbon black producers in China. Some are mom-and-pop operations and produce carbon black of very bad quality. But all the major players have plants in china, and there is good carbon black made there too.”
China's expansion into the U.S. and world carbon black markets will be largely price-driven, he said, noting that China “has a huge price advantage on us. Because China owns its steel market, it can take the coal tar from those plants and make carbon black.”
The result, he said, is Chinese carbon black that costs $8 to $10 less per barrel than U.S. carbon black. “They can eat the freight costs,” Mr. King continued, “and still lead the market.” India and Russia also are growing steadily in carbon black production, according to Mr. King.
Russia's Omsk Carbon Group, for example, is building a black plant in Omsk with a nameplate capacity of 80,000 metric tons initially and up to 150,000 tons by 2019.
To reach this reporter: mmoore@ crain.com.