Now lets look at the user industry [Tyres] to see if there is a possibility of steep decline in demand
70% of carbon black demand comes from the tyre industry. Tyre industry demand is generally driven more by replacement than by OEM. Share of OEM is 25% and replacement 75%. Exports accounts for 12% for FY12.
Imports market share in truck segment (truck segment accounts for 55% of industry revenue) is around 5% and in passenger cars around 15%.. Even during 2009 slowdown tyre production had not declined but remained flat (1.2% y/y growth). Same is the trend during 2012 wherein despite its main segment trucks facing double digit decline, overall production of tyres grew by 4%.
From the above data, we can we reasonably say that there wonât be any steep decline in domestic demand for Carbon black.
Global Carbon black industry
In 2011, the three largest global carbon black producers, Birla/Columbian, Cabot and ORION, together accounted for approximately 38% of the installed global carbon black capacity. China accounts for almost 40% of global Carbon Black capacity (China capacity stands at 5.6M tonnes).Capacity utilisation stands at 60% during CY 2011, which is among the lowest in the world. Total world ex China capacity utilisation stands at 88%.Companies in China have aggressively added capacity at a far greater rate than demand has risen, which has resulted in pressured margins in the region. [Orion annual report]
Thus Chinaâs idle capacity at 2.2M is much higher than Indiaâs installed capacity. China will continue to remain a threat for stability of CB prices.
Coke - Main determinant of raw material prices to make Carbon Black in Chinese way
[take this section with a pinch of salt as this is more based on my incomplete understanding and just brief reading of some articles on China industry]
China accounts for 46% of the world's crude steel production. That is more than the European Union, plus the U.S., plus Japan all put together. In China, like most other countries, power plants and steel plants are largest consumer of coal. It seems that in China coal prices are not regulated but power plants are regulated at the rate at which they can sell the power. Some time back, power plants demand for coal decline because of reduced manufacturing activity and also because power tariff rates were not competitive enough.
Now Chinaâs economy itself is dependent so much on exports that another steep decline in coke prices cannot be ruled out completely if there is renewed global slowdown.