The global carbon black industry has recently faced significant challenges, leading to a notable decline in the financial performance of several companies within the sectorA confluence of high costs and overcapacity has put tremendous pressure on carbon black manufacturers, making 2023 a year of turmoil for the industry.

In particular, two companies — Hei Mao CoLtdand Jinneng Technology — have provided stark examples of this trendTheir earnings forecasts indicate a dramatic drop in net profit, revealing the harsh realities of the market as companies struggle with the impacts of fluctuating raw material prices and weakened demand.

According to industry analyst Cui Xiang, while there may be signs of market recovery in the latter half of 2023, it has not been sufficient to counterbalance the losses incurred earlier in the yearSpecifically, he cited high costs and weak demand during the first half as primary factors dragging down profits in the carbon black sector.

Delving deeper into the issues faced by companies like Hei Mao, the volatility of raw materials such as coal tar has been particularly troubling

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In the second quarter alone, prices for coal tar and carbon black plummeted, directly impacting gross profit marginsAlthough there were some improvements expected in the third and fourth quarters, ongoing fluctuations in raw material prices present an ongoing hurdle for producers.

Carbon black serves as a pivotal material in the industrial economy, playing a critical role across various sectorsIts production chain stretches from high-temperature coal tar and anthracene oil all the way to end-user products like tires and coatingsDespite its importance, the performance of the carbon black market in 2023 has thus far been underwhelming, facing a myriad of hurdles.

Shem Jinliang, the chairman of the carbon black branch of the China Rubber Industry Association, highlighted in a public address that the challenges facing the carbon black industry have persisted since the previous year, characterized by disappointing economic indicators and significant losses among companies pressured by upstream and downstream factors.

A major contributor to the stagnant growth in the carbon black industry has been an imbalance in supply and demand

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Cui Xiang noted that the market has been plagued by a persistent oversupply, resulting in substantial downward pressure on domestic pricesIn recent years, increases in carbon black production capacity have not been matched by equivalent market demand, particularly as downstream industries like rubber and plastics have begun to decrease their reliance on carbon black due to environmental regulations.

This scenario has spurred a poor financial performance across the board for publicly listed companies in the sectorFor instance, Hei Mao's latest earnings forecast indicated a staggering net loss between 220 million and 255 million yuan for the fiscal year of 2023. Similarly, Jinneng Technology is projecting a decline in earnings of approximately 42.69% to 52.24% compared to the previous year, anticipating a profit of only 119 million to 143 million yuan.

These figures encapsulate the difficulties currently gripping the carbon black industry as a whole, with volatility in raw material prices only compounding the problem.

In light of the sluggish traditional carbon black market, many companies are redirecting their focus toward high-end markets

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One particularly promising area is conductive carbon black, which has attracted attention due to its application in the rapidly expanding electric vehicle sector.

Cui Xiang emphasized that the current state reflects a structural oversupply within the carbon black industry, with intense competition suppressing profit margins for low-end productsHowever, mediums such as high-end conductive carbon black still exhibit substantial demand and maintained robust profit margins.

Responding to these market trends, numerous leading domestic enterprises are increasing their investments in the conductive carbon black fieldIn 2023, Hei Mao announced plans for additional investments in two specialty carbon black projects aimed at bolstering its position in the conductive carbon black sector.

Simultaneously, Yongdong Cohas publicly stated that it has samples of its conductive carbon black products ready, and plans to launch a 70,000-ton specialty carbon black project in 2024. Another entity, Lian Ke Technology, has recently reported the completion of two production lines for high-dispersible silica and silicon acid, with the capability of producing 100,000 tons of nano-carbon materials for high voltage cable shielding

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This development aims to break foreign technology's monopoly and push for localized production of conductive carbon black.

The outlook for conductive carbon black appears favorable in the capital market as wellWith the increasing penetration of electric vehicles, industry forecasting body Huajing Research Institute predicts that the global conductive carbon black market could rise to between 6.47 billion and 8.63 billion yuan by 2025, marking a 90% increase from 2022. The domestic market is similarly expected to surge by approximately 110% within the same time frame.

De Bond Securities has commented that with major companies like CATL ushering in a new age for electric vehicle "supercharging," demand for high-end conductive carbon black is projected to increase significantly.

Furthermore, the capacity utilization rate within China’s carbon black industry remains around 70%. However, certain small to medium-sized enterprises struggle to compete due to various factors, resulting in insufficient operational rates

In contrast, larger industry players, known for their superior technology and product quality, are expanding their capacities in response to increasing competition.

Currently, China dominates as the leading supplier of carbon black globally, accounting for approximately 46.1% of the world’s outputThe carbon black production capacity in China was about 9.77 million tons in 2023, reflecting a modest increase compared to the previous yearThe eastern and northern regions of the country together hold a substantial portion of the total output, showcasing a consistent annual growth of 3% in total capacity.

Looking ahead, predictions indicate a slight increase in domestic carbon black capacity in 2024. The government’s policies are designed to optimize the industry structure, aiming to phase out obsolete capacity while raising market entry thresholdsAs the sector transitions from rapid growth to high-quality development, the competitive landscape may continue to shift, inevitably leading to the exit of less competitive players.

Analysts, including Cui Xiang, believe that concentration within the carbon black industry will increasingly intensify, with a more scientific layout emerging