The Pittsburgh Post-Gazette had a story today about a project funded by the U.S. Department of Energy dedicated to the development of more fuel-efficient truck and bus tires. The project brings together PPG Industries and Bridgestone Americas and involves PPG’s new Agilon performance silica, which can reduce tread rolling resistance and thereby improve fuel economy, according to PPG. The DOE is providing $1.25 million to the development project, which aims to improve the fuel efficiency of large tires by 4% to 6%, while also improving traction and tread life. The prototype tires should be developed in about three years, according to PPG.
Research and development for the project is being conducted at PPG’s research center in Monroeville, Pennsylvania and at Bridgestone’s technical headquarters in Akron, Ohio. Agilon is produced at PPG’s plant in the Delfzijl, Netherlands, where capacity is being increased this year. Last month, PPG announced it also planned to add capacity to its silica plant in Lake Charles, Louisiana. The project will add 10,000 tons of capacity in the second half of 2016.
This week, Omsk Carbon, which is Russia’s largest carbon black producer, announced it expected to begin production at its new carbon black factory in the Belarusian Free Economic Zone in Mogilev, Belarus, by July/August 2016 and reach its full capacity by 2019. The project is expected to cost US$103 million and the plant will have a total capacity of 200,000 tons at full capacity. The plant will employ some 450 workers. This will be the company’s third carbon black plant.
Bridgestone Europe has denied rumors that it has delayed its previously announced capacity expansion in Tatabanya, Hungary. The project, announced in October 2012, will add capacity to about 6.5 million tires per year (18,000 tires/day) by the first half of 2017. According to Bridgestone Europe, there has been no reassessment of the project, which is on schedule. The plant’s capacity is focused on premium radial passenger car tires, including run-flat tires and UHP tires.
In separate news, Russia’s Tass News Agency is reporting that Bridgestone will open its new tire plant in Russia later in 2016. According to Tass, Bridgestone will invest 12.5 billion rubles (US$147.7 million) in the new factory. Equipment assembly and pre-commissioning is currently underway at the plant and should be complete in the second half of the year. The project broke ground in April 2014. Capacity at the plant in Ulyanovsk Oblast will be 2 million units/year by 2019, though that could be doubled to 4 million tires/year if there is adequate demand. Employment will total about 800 workers in the first phase. This project is a joint venture between Bridgestone (90%) and Mitsubishi Corporation (10%).
Richard Laine, a materials science and engineering professor at the University of Michigan, has developed a new process to produce silica from agricultural waste including rice hull ash. According to Mr. Laine, the new process uses ethylene glycol and ethanol combined with sodium hydroxide to weaken the chemical bonds between the silica and the rice hull ash, dissolving the silica into a liquid solution. The liquid silica is distilled from the solution and processed into precipitated silica appropriate for industrial use. The process costs approximately 90% less than the current process, with virtually no carbon footprint. Mr. Laine has formed a company Mayasil (Ann Arbor, MI), to commercialize the technology. The company is building a pilot plant to test the process.
On Friday, Orion Engineered Carbons announced that its Board of Directors has approved a capital allocation plan that includes the repurchase of up to $20 million of its common stock over the next 12 months depending on market conditions. The company also will use €70 million of available cash to reduce debt by approximately 10%, thereby reducing ongoing annual debt costs by about €3.5 million. This debt payment will be initiated in December 2015. The company also tightened the range of its FY 2015 Adjusted EBITDA outlook to €205 million to €210 million, from €203 million to €210 million.
In a press release announcing the decision, Orion’s CEO Jack Clem said:
This plan highlights our confidence in Orion’s long term business model and our ability to deliver both operational and financial performance in the future. We are pleased with the strategic position and performance from our Specialty Business, which is delivering excellent profitability and expanding volumes around the globe. Regarding our Rubber Business, with the acquisition of the majority stake in the carbon black plant in Qingdao, China, we have gained a position in this region as the leading supplier of high purity technical grades to the automotive markets. This acquisition complements our expanding Asian business and will have an immediate positive impact on the EBITDA performance of our Rubber Business. Furthermore, volumes in all of our producing regions are holding up as we head toward the end of the year. Given this, we are tightening the range of our FY 2015 Adjusted EBITDA outlook.
Moving forward, we believe the organizational change to place operations under control of our individual business units is progressing well. This change increases alignment of processes needed to successfully execute our strategy. Also we expect this change in business structure to best position Orion to exploit future industry consolidation opportunities. We are pleased that our Board has approved a capital allocation strategy that addresses both our current valuation in the public markets while also enabling the company to bolster its balance sheet by repaying approximately 10% of debt currently outstanding. We remain confident in our ability to fund internal improvement initiatives while continuing to generate strong free cash flows enabling us to pay out a healthy, quarterly dividend of EUR10 million, as we have done since our Initial Public Offering. While we have been disappointed with the performance in our Rubber Business in 2015 as a result of negative feedstock impacts, we believe we remain well positioned to execute our long term strategy. We expect to drive continued growth in our Specialty Business. We also expect cyclical and structural margin upside in our Rubber Business as the feedstock environment normalizes, and we execute on our Asian strategy following the acquisition in Qingdao earlier this year. We are pleased that our business model has generated such strong free cash flows that allow this proactive and robust capital allocation strategy.
Smithers Rapra has scheduled the next Carbon Black World conference for May 25-27, 2016 at the Omni Hotel in Fort Worth, Texas. More details as they become available.
Cabot Corporation announced yesterday that it will close its carbon black manufacturing facility in Merak, Indonesia. Cabot anticipates that manufacturing operations will cease by the end of January 2016. This will leave Cabot with one carbon black plant in Indonesia, located in Cilegon.
The decision, which will affect approximately 50 local employees, was driven by the Merak facility’s financial performance over the past few years. Despite efforts to be competitive, the facility has suffered from low utilization rates, according to Cabot. Asia is quickly becoming one regional market and this dynamic has created the need for Cabot’s facilities to be even more cost competitive. As such, Cabot will consolidate production in Asia by ceasing production at our Merak facility and using its Cilegon, Indonesia as well as other Asian and global carbon black production sites to meet the regional demand.
Indonesia remains a strategic country for Cabot’s carbon black business, according to the company. Its tire manufacturing industry supplies growing local and global demand. Cabot is committed to engaging with customers currently served from the Merak plant to determine how best to meet their needs during and after the shutdown of production. Cabot will leverage its global manufacturing reach to continue to offer quality products and technical services to its customers in Indonesia as well as throughout Asia Pacific.
Cabot expects the closure plan will result in a pre-tax charge to earnings of approximately $33 million, of which approximately $8 million of this amount is cash and $25 million is a non-cash charge. Annual savings related to the closure are estimated to be approximately $8 million, of which approximately $5 million is cash.
Cabot Corporation today announced a plan to restructure its operations with anticipated cost savings of approximately $50 million in fiscal 2016 as compared to fiscal 2015. As proposed, the plan would result in the reduction of approximately 300 positions globally and the savings are expected to begin in the second quarter of fiscal 2016.
Commenting on the restructuring plan in a company release, Cabot President and CEO Patrick Prevost, said, “Due to the challenging macroeconomic conditions facing our businesses, including lower oil prices, slowing demand in Asia and South America and less favorable foreign currency exchange rates, we are in need of adjusting our Company’s cost structure to improve our competitiveness. These are difficult decisions because we recognize they will impact our valued employees, their families and the communities where we operate.” The Company expects the restructuring plan, which is subject to local consultation requirements and processes in certain locations, to result in a pre-tax charge to earnings of approximately $35 million, mainly comprised of severance and employee benefits. Net cash outlays related to these actions are expected to be approximately $30 million, substantially all of which is expected to be paid during
Here is the full 8-K announcing the plan.
On October 15, Orion Engineered Carbons S.A. and Evonik Industries AG today announced agreements on transactions where Orion will acquire Evonik’s 52% percent stake as well as Deutsche Investitions- und Entwicklungsgesellschaft mbH’s (DEG) 15% stake in Qingdao Evonik Chemical Co., Ltd. (QECC). QECC is a joint venture established by Evonik, DEG and Jiaozhou Finance Investment Center (JFIC) in 1994 based in Qingdao (Shandong Province), China. It has production capacity of approximately 75,000 tons of carbon black per year. The plant is equipped with three production lines and its main manufacturing focus is on high-end carbon black products. Orion will initially step into the established joint venture in place of Evonik and DEG, but OEC and JFIC are in advanced talks regarding the transfer of JFIC shares to Orion in accordance with regulations governing Chinese state-owned enterprises, which would give Orion full ownership.
“We are pleased with the progress made on bringing this facility back into our global carbon black manufacturing network,” said Jack Clem, CEO of Orion in a press release. “We believe that this acquisition will greatly improve our ability to serve the highly important Chinese market, as well as the rest of Asia-Pacific, over and above the current use of our global network for exports to that region.”
“I am thrilled that our plant in Qingdao will become a key pillar of Orion’s base of operations in APAC, joining our two plants in South Korea and our regional headquarters in Shanghai. This increased presence will enhance our portfolio of innovative products and solutions that are valued by our customers and business partners.”
The agreement is subject to Chinese government review and other customary closing conditions and is expected to close in the fourth quarter of 2015. The European Commission approved Orion’s prospective acquisition of QECC concurrent with its consideration of the sale of Evonik’s Carbon Black business to Rhône Capital and Triton Advisors in 2011. Until the closing, Orion and QECC will continue to operate independently.