By Wang Xin, JLC

Three factors influencing China’s carbon black market in H1

One of main raw materials of tires, carbon black with rich varieties could meet the requirements of different rubber products. Domestic carbon black industry has developed soundly – in many aspects like capacity, output, import and export – until 2020, when the coronavirus put a spanner in the global economy, leaving the global economy in a deep recession, which led to a plummet in tire export orders, and accordingly impacted domestic carbon black market. China took effective measures to combat against the coronavirus. With foreign countries issuing stimulus policies and gradually lifting Covid-19 curbs, global demand for additives rebounded and China’s carbon black export trade was propelled.

Carbon black prices hit an all-time high during the end of April-the beginning of May 2022, mainly because of: 1) prices of coal tar remaining high; 2) rising export volume of carbon black in March, April and the beginning of May-one of effects of Russia-Ukraine conflict that made more downstream firms import carbon black from China; 3) harder logistics transportation and higher freight costs arising from the coronavirus. The prices started to fall in June, given factors like low load rates of tire enterprises, low purchase quantity of carbon black buyers, etc. Figure 1 shows domestic carbon black price trend during 2020-2022

Figure 1 Domestic price trend of carbon black during 2020-2022

Increasing capacity of carbon black

Up nearly 400 000 t/a per year since 2002, domestic carbon black capacity grew to 8.27 million t/a in 2020 and to 8.54 million t/a in 2021 (see Figure 2 for details). Although many carbon black producers like Shanxi Anlun Chemical Co., Ltd. and Suzhou Baohua Carbon Black Co., Ltd. raised capacity attributable to rising demand, domestic output – curbed by factors like the coronavirus and policies to protect the environment – decreased 0.81% YoY to 5.7 million tons in 2020, and to 5.2 million tons in 2021.

Figure 2 China’s capacity and output of carbon black during 2014-2021

In the first half of 2022, domestic output of carbon black was down 11.2% YoY to around 2.9 million tons as the coronavirus decreased operating rates of carbon black firms. Further, tire and tire product firms could hardly increase operating rates due to the coronavirus, leading to a decrease in demand for imported carbon black, which amounted to 49 500 tons in H1, down 2.17% YoY. On the contrary, H1 export volume of carbon black was up 2.61% YoY because Russia-Ukraine conflict brought more foreign purchasers. Hence, carbon black external dependence declined to 15.4%. As for consumption, domestic tire and tire product firms remained as major downstream consumers, but overseas demand also increased.

China’s new capacity of carbon black in 2022 and next few years is forecast to reach around 1.63 million t/a, according to data from www.cncbt.org.cn. Therefore, in spite of phase-out of some small outdated facilities, domestic carbon black capacity will grow, which will exacerbate overcapacity. Hence the necessity of strengthening capacity concentration.

Three development trends

1) To improve capacity layout

Overcapacity has troubled carbon black producers for a long term. Many producers expanded capacity in recent years, but operating rates of most firms were low owing to the coronavirus or policies to protect the environment. Overcapacity dragged down profits. Therefore, domestic carbon black industry will improve capacity concentration via reorganizations and M&As.

2) To improve innovation capability and develop specialty carbon black products like color black and conductive black

These are effective measures to beat the opponents, in the context of overcapacity and vicious competition among low-quality carbon black products.

3) To strive for balance among raw material, supply and demand

In 2020, the final year of the nation’s 13th Five-Year Plan period, more stringent environmental protection policies forced many firms to shut down outdated coke ovens, but limited new coke ovens were put into use, decreasing coal tar supply and increasing coal tar prices. In addition, global demand for carbon black continues to fall in 2022 because of the coronavirus. These factors will exacerbate structural overcapacity. To achieve sustainable development, carbon black firms should balance purchase of raw materials, supply and demand of carbon black.