Late last week, Orion Engineered Carbons announced two actions regarding their business in Korea. In the first, Orion will convert a tire grade carbon black line at its plant in Yeosu to produce specialty and technical grades instead of tire grades. The action will impact 20,000 tons of carbon black. The conversion project will being in 4Q 2016 and is expected to be completed by July 2017.
“This line conversion in Yeosu is among the next steps in Orion Engineered Carbons’ ongoing transition to higher value added products for specialty and technically demanding rubber applications,” said Jack Clem, Orion’s Chief Executive Officer. “This project, along with our previously announced plans to expand the specialty and technical grade mix at our Qingdao, China plant, will continue our penetration of the rapidly growing North and Southeast Asian markets, as well as providing support for demand from the rest of the world.”
Secondly, Orion announced that it will implement a base price increase of up to 9% on all Rubber Black grades produced in South Korea and sold in the Asia/Pacific market. The increase will begin on December 1, 2016. Orion cites tightening environmental laws and regulations, which the company says are adding substantial amounts to its operating cost base, as are annual increases in labor costs. These conditions are being exacerbated by unfavorable developments in the feedstock market; over the last months Orion reports that it has had to pay significantly more for high quality carbon black oil due to a very tight Korean fuel oil market. The price increases have occurred independently from the underlying movements of the Singapore fuel oil index, which is used as the reference for price adjustments related to oil price changes that Orion negotiates with its Korean customers on a regular basis.
This discrepancy mirrors similar recent issues in both Europe and the United States wherein actual feedstock costs have differed significantly from the index grades used to calculate feedstock costs for pass-through.
Here are the press releases:
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