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Birla Mexico — Will They or Won’t They?

An air of uncertainty hangs over the North American carbon black industry. There are persistent rumors that one of the US producers will close a plant or at least a unit, but thus far there’s been no specific news (aside from Cabot Waverly). But the biggest question is related to Birla Group: will they move forward with their proposed carbon black plant in Mexico?

News of the project surfaced last year in the press, primarily through the Economic Times (India). As originally envisioned, the plant would have an initial capacity of 60,000 tonnes, expandable to 200,000 tonnes. The plant would be located in Altamira, Tamaulipas and would be structured as a joint venture between Alexandria Carbon Black and Thai Carbon Black. The original start-up date was set for 2008.

So what is the current status of Birla Carbon Mexico? Based on some off-the-record conversations with Birla people and competitors, it would appear that this project is on-hold. Birla Group’s carbon black business is focusing its capital spending on its current slate of announced expansions in Egypt (two new units in 2009), India (new plant in Patalganga) and China (doubling capacity this year), while Mexico has been put on the back burner. If the plant goes forward, Birla would break ground in 2009, with start-up about 7 months later (so late 2009 or early 2010).

What happened? As Birla worked to put the project together, the plant’s economics were less favorable than originally thought due to a number of unforeseen complications.

  1. Steel costs remain quite high.

  2. Due to poor water quality at the site (which would negatively affect the cogen unit and the quality of the carbon black), the plant would need to include a water treatment plant on-site, which increases costs.

  3. Shipping carbon black out of the plant via container ships proved more expensive than assumed.

  4. Bringing feedstock into the plant would be more expensive than thought. The plant would use imported CBO from the US Gulf Coast, but even though the proposed site is very close to the Altamira port, the costs of receiving, storing and transporting (by pipeline) CBO were higher than Birla pays in other countries.

  5. Birla is not satisfied with the level of cooperation among Mexican authorities, particularly regarding tax incentives and permitting. By contrast, the permitting process is more fluid in Egypt, India and China, so the decision was made to focus on those operations.

In evaluating Birla’s situation, it may be instructive to look at Bridgestone’s experience with its new Mexican plant, which is starting up this quarter. Bridgestone’s new Mexican plant is said to be an exact duplicate of its plant in Thailand. However, the Thai plant was built in 2003/2004 for a cost of $40 million, while the Mexican plant was built in 2007/2008 at a cost of $81 million.

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