Carbon black shortage is now a reality

HILTON HEAD ISLAND, S.C. — A carbon black shortage predicted in 2014 is on the verge of becoming reality.

Demand for carbon black by U.S. tire makers is starting to outstrip supply, and that isn't likely to change any time soon, Gary Horning, national accounts manager for Sid Richardson Carbon and Energy Co., told those attending the 34th Clemson University Global Tire Industry Conference, held April 18-20 in Hilton Head.

"It's going to be tough," he said. "Demand for carbon black in North America is increasing. Tread carbon blacks are already tight and will be oversold soon. Some are oversold already."

Mr. Horning delivered the presentation prepared by Greg King, vice president for sales and marketing at Sid Richardson, who had been called away on business.

The speech updated Mr. King's presentation from the 2014 conference, which predicted the U.S. tire industry would start seeing shortages of carbon black as early as 2016.

"The industry has caught up with our expectations," Mr. Horning said. "As Dickens said, 'It's the best of times and the worst of times,' and it's very difficult to be in the carbon black industry right now."

According to figures Mr. King prepared for the conference, the North American tire industry (including Mexico) is facing a shortfall that could grow to 375 million pounds by 2025 — barring any capacity expansions by the five domestic black producers.

The model assumes that tire production would grow at a rate equal to the Gross Domestic Product, plus 65-percent capacity utilization by manufacturers building their first U.S. plants.

"In the long run, markets do not stay in disequilibrium," Mr. Horning said. "Our mindset has been that supply-side market forces alone would balance the carbon black market."

A raw-materials shortage is inevitable, necessitating either an increase in North American carbon black production or carbon black imports, according to Mr. Horning.

"However, the data on imported tires suggests some impact by demand-side market forces as well," he said.

Capacity utilization in the U.S. carbon black industry is 84 percent, according to Messrs. King and Horning. Carbon black imports at best are a question mark, Mr. Horning added.

"When oil was $100 a barrel, you could import carbon black competitively," he said. "The price of oil is the X factor of what will happen in the future."

Meanwhile, changes in the domestic tire manufacturing industry are putting new pressures on carbon black producers.

Capacity utilization in all sectors of tire production is in the 70- to 80-percent range, Sid Richardson executives said, but tire size and structure also are changing.

"Tires are wider with smaller sidewalls," Mr. Horning said. "This creates more demand for tread blacks, but less for carcass blacks."

The most popular rim size, once 14 and then 16 inches, is 18 inches, Mr. Horning said.

Demand for silica as a replacement for carbon black to achieve lower rolling resistance impacts carbon black demand to some extent, he said.

"However, we welcome that to some degree," he said. "I don't think we can make enough tread black to satisfy demand."

Considering domestic tire production capacity that has come on-stream over the past five to seven years or is about to go on-stream, "there is a staggering amount of tires to be built," Mr. Horning said.

Concern over import duties and the growth of Asian auto assembly plants in the U.S. is pushing Asian tire makers to invest in North America, he said.

As many as five new tire factories, representing more than 20 million units of annual capacity, have opened in the U.S. in the past five years — Giti Tire Group in Richburg, S.C. (5 million units); Hankook Tire America Corp. in Clarksville, Tenn. (5.5 million units); Kumho Tire U.S.A. Inc. in Macon, Ga. (4 million units); Trelleborg Wheel Systems in Spartanburg, S.C. (farm tires); and Yokohama Tire Corp. in West Point, Miss. (1 million units).

In addition, Continental A.G., Nokian Tyres P.L.C. and China's Qingdao Sentury Tire Group, Triangle Group and Wanli Group have announced plans for greenfield tire factories, representing 21 million units or more of annual capacity.