◎ Wei Ming, General Manager of Jiangxi Blackcat Carbon Black Inc. Ltd.

In the first quarter of 2019, the price of raw oil for coke carbon black in China maintained high, meanwhile, affected by decline in demand of automobile industry and negative forecast of trade friction, the purchase intention of tire enterprises declined and the gross margin of carbon black sharply fell; in the second quarter, the overall market had a steady rise, the rise in the selling price of carbon black was larger than that of raw oil, and the gross margin of carbon black products had a year-on-year increase.

The influence of weakness of domestic automobile industry is still lasting, the influence of trade war is not finished, the demand of the tire market for carbon black is predicted to decline but the newly added capacity of carbon black is constantly released. Therefore, the carbon black industry shall carefully consider how to respond and develop in the future.

Current Development Status of Domestic Carbon Black Industry

Growth Conditions of Output and Capacity of Carbon Black

Along with rapid development of China’s national economy, especially automobile and tire industry, as well as rapid development of steel industry and coking industry, the demand of carbon black market is strong and the output and capacity of carbon black develop rapidly. In recent ten years, China’s carbon black growth rate reached 8%, and China’s carbon black output has exceeded that of America to be top 1 in the world since 2006. In 2018, the operation rate of the whole industry was nearly 80%.

Enterprise concentration and scale gradually formed

According to the statistics of China Rubber Industry Association (CRIA) Carbon Black Branch, China’s overall capacity and overall output of carbon black in 2018 was respectively 7.53 million tons and 5.71 million tons. The capacity of the member enterprises reached 6.04 million tons, accounting for 80.21% of the gross national capacity; the output was 5.21 million tons, accounting for 91.2% of the gross national output. This benefits the regular operation of carbon black market as well as the improvement of the operation quality of the whole industry.

Fig. 1: China’s Capacity and Output Conditions of Carbon Black from 2010 to 2018

Table 1: Capacity and Output of Main Carbon Black Enterprises in China in 2018  

Unit: Ten Thousand Tons

The openness was further improved

In 2018, China’s carbon black export volume was 890,000 tons, with an increase (year-on-year, the same below) of 21.9%; the import volume was 95,000 tons, with a decrease of 6.9%. 

Main Problems Faced by Carbon Black Industry

The capacity has structural surplus

Since 2002, the annual increase in China’s capacity of carbon black has been kept nearly 400,000 tons. In 2018, the gross capacity reached 7.53 million tons but the output was only 5.71 million tons, the industry had severe structural overcapacity.

In terms of geographical location, China’s capacity of carbon black is mainly in North China and East China, only the carbon black capacity of Shandong, Shanxi and Hebei accounts for 58% of the gross national capacity.

Fig. 2: Capacity Distribution of Main Carbon Black Enterprises in 2018

From the end of the “11th five-year” to the “12th five-year”, with the market demand brought about by the development of automobile and tire industry, the carbon black industry started the projects to expand the capacity blindly, and the structural surplus problem of the industry brought about became prominent. According to the information, in recent two years, the growth speed of tire industry slowed down, but a lot of newly-added carbon black capacity still appeared, the overcapacity contradiction of the industry became more prominent. In addition, due to disordered development and vicious competition of carbon black industry, the capacity utilization rate of the industry kept at a relatively low level for long, and the profit status was also low for long.

In 2013, to avoid expanding capacity blindly, accelerate the elimination of outdated capacity and change the growth mode, the State Council issued Guiding Opinions on Resolving the Contradiction of Severe Overcapacity to determine steel, cement, electrolytic aluminum, plate glass and ship as five industries with overcapacity, this document also has guiding significance for the contradiction resolution work of other industries with overcapacity. On this basis, Shandong Province also increased two industries, oil refining and tire. Although the output of the related coke and carbon black industry increased due to shrinkage of demand and raw materials, the growth speed slowed down, the output of coke industry even had a declining trend.

Fig. 3: China’s Import and Export Conditions of Carbon Black from 2010 to 2018

Fig. 4: Output Tendency Chart of Carbon Black Industry and Upstream and Downstream Industries in Recent 10 Years

Under multiple pressures such as shortage of raw oil, environmental protection, energy conservation and consumption reduction, the industrial profit is relatively low

Along with change of national macro policy, the downstream tire industry is weak and the upstream raw material resources become tense, which results in continuous declining trend of carbon black, the operation rate was also affected severely and the average operation rate of the industry in recent 5 years was only kept around 70%. In recent 10 years, although the capacity of China’s carbon black industry was constantly improved, the profit rate of the industry was always at a low level due to a large gap between China’s carbon black enterprises and international famous enterprises in manufacturing level, especially R&D innovation. It can be seen from the Profit Rate Conditions of China’s Carbon Black from 2010 to 2018 (see Table 4) that the profit rate of the industry had been in a state of merger profit before 2017, and there was even a situation of deficit of whole industry in 2015.

From the second half year of 2016, the nation constantly issued increasingly strict environmental protection governance policy, the production cost of carbon black went up, the output was limited and the supply shrunk, phased severe shortage of carbon black products even appeared in 2017, which drove the price of carbon black to rise all the way, and the price in 2017 was 53.54% higher than that in 2016.

Affected by limited production of coking industry, the price of main raw material coal tar showed a rising trend, which also formed an important support for the price of carbon black products. Comparing the price difference between carbon black and coal tar, we can find that the price transmission mechanism is relatively smooth.

The profit status of carbon black industry had been stabilized at a relatively good level by the 3rd quarter of 2018. At the end of the 4th quarter of 2018, since the environmental protection policy became rational and multiple regions considered the livelihood issues, the price of coal tar sharply fell, additionally, with the influence of decline of domestic and overseas markets of tire industry, the price of carbon black had a free-fall decline. Although the industry remained profitable in the whole year of 2018, the industry entered a deficit situation on the whole in 2019.

Fig. 5: Profit Rate Trend of China’s Carbon Black Industry from 2010 to 2018

Future Development Forecast of the Industry

Rise in oil price and increase in overseas carbon black cost are good for export of domestic carbon black

The raw oils for international production of carbon black are divided into three categories: firstly, coal tar, it is a by-product generated by coking, in which the output of high temperature coke-oven coal tar accounts for about 3%~4% of the coke output; secondly, ethylene tar, it is a by-product generated by production of ethylene through pyrolysis of hydrocarbons, which can be used as the raw material for production of carbon black as well as the fuel of industrial boiler, and its output accounts for about 20% of the ethylene output; thirdly, clarified oil (FCC), it is the product of production of gasoline through catalytic cracking of gas oil. 

If the global carbon black output is ranked geographically, Asian-Pacific region ranks first, with its output accounting for about 60%; North America ranks second, with its output accounting for about 14%; Russia and the countries in East Europe rank third, with the output accounting for about 9%, followed by 7 countries in West Europe, with the output accounting for about 7%, Central and South America, with the output accounting for about 6% and Africa and the Middle and Near East, with the output accounting for about 4%.

Fig. 6: Global Carbon Black Capacity Structure

If the global carbon black output is ranked by country, the sequence of Top 10 carbon black producing countries are: China, America, Russia, India, Japan, South Korea, Brazil, Thailand, Germany and Italy, in which the annual carbon black output of China has exceeded 40% of total global output, followed by America, which is the second largest carbon black producing country and consumption country.

Since the refinery processes of China and America differ, China’s clarified oil of catalytic cracking is basically used for preparation of fuel oil while America’s clarified oil of catalytic cracking can not be used for fuel oil, and its nature is suitable for serving as the raw material of carbon black oil. The carbon black oil of Europe and America is mainly FCC, especially that of America reaches 95%, while China’s carbon black mainly takes coal tar and anthracene oil as the raw materials.

From 2010 to 2014, the export of domestic carbon black kept a high growth, but in 2015, the export declined by 13%, which was mainly caused by sharp fall in price of naphtha, drop in production cost of overseas carbon black and sharp decline in price advantage of domestic carbon black. In the next few years, rise in oil price promoted increase in production cost of overseas carbon black, which was good for export of domestic carbon black, the export volume of domestic carbon black achieved new high in 2018, which increased by 21.9% compared with that in 2017. The future is full of uncertainty, it is highly possible that implementation of international conventions on marine shipping in 2020 will bring about significant change of carbon black raw material market layout.

Due to environmental protection pressure and rise in price of coal tar, the excess capacity of supply side will be gradually cleared

Under multiple pressures of “de-capacity + continuous environmental protection input + rise in price of coal tar”, the small and medium capacity is expected to be quit at a faster speed.

Firstly, the nation’s insisting on the policy of adjustment of industrial structure will accelerate industrial transformation and upgrading and eliminate the outdated capacity, the industrial concentration is expected to be further improved.

Secondly, there are some pollutants emitted during production of carbon black, which are mainly waste gas and dust. As the environmental protection situation becomes increasingly severe, relevant departments of the government at various levels in various places, especially the cities in “2+26” transmission path, require the enterprises in the industries such as carbon black to mount the desulphurization and denitrogenation device, which has high installation expense and operation cost, high energy consumption (fan, high voltage electrostatic precipitation, etc.) and high equipment maintenance expense (the parts of desulphurization tower need to be replaced once every two months).

Thirdly, affected by decapacity of coal industry, the price of coal tar rises rapidly, with increase in cost pressure and difficult purchasing caused by supply shrinkage of coal tar, the profit status of carbon black industry becomes worse and the small and medium capacity is expected to be quit at a faster speed.

The automobile output and sales volume decline, but the demand of tire becomes better continuously

90% of carbon black products are used for manufacturing of rubber products, in which 67% are used for tires, 24% are used for other rubber products and 9% are used for non-rubber purposes.

In 2018, the domestic automobile output was 28.32 million vehicles, the car ownership is 209 million vehicles, the automobile sales stably ranked first in the world and the ownership continued to grow. In the first half year of 2019, China’s automobile output and sales volume were 12.132 million vehicles and 12.323 million vehicles respectively, which declined by 13.7% and 12.4% respectively. The automobile output and sales volume ran at a low level on the whole, with a year-on-year decline for 12 months in a row. China Association of Automobile Manufacturers predicts that it will show a negative growth on the whole throughout this year.

In spite of this, it is estimated that the growth of the demand of China’s automobile market is far faster than that of the global market. The average growth speed of China’s car ownership from 2015 to 2017 was 12%, considering the replacement cycle, the compound growth speed of demand of China’s tire market in the future three years will be over 12%, which is far higher than the compound growth speed of global tire market, 3%~5%. Enormous commercial profit and broad development prospect contained by China’s market have long become impossible to be ignored.

Future Development Forecast of the Industry

At present, both China’s tire industry and carbon black industry have changed from the phase of high-speed growth to the phase of high-quality development. As the constraint of the resources and environment on the industry becomes larger, the development of the industry is full of complexity and uncertainty as well as faces more challenges and opportunities.

The development history of China’s carbon black industry can be traced back to the 1970s and has been over 40 years till now, however, the development history of world powers has exceeded 100 years. Although China’s economic construction has achieved rapid growth since the reform and opening-up, even the gross scale of many industries has ranked 1st in the world, compared with international powerful enterprises, the sedimentation of industrial development history, accumulation of technology, input of scientific research innovation, product performance and brand recognition are still in a backward position.

The way of narrowing the gap and catching up with and surpassing the powerful enterprises is long and hard. It is suggested to break the industrial boundaries and give full play to the advantages of perfect industry and high concentration, the dominant enterprises in the chain shall join together to make efforts to accelerate the speed of catching up with and surpassing the global powerful enterprises and realizing the magnificent target of becoming a powerful carbon black industry country in advance.