Oversupply Threat Looms Large in Asian Carbon Black Market Amidst Demand Concerns

Shanghai (China): Birla Carbon recently announced plans to increase their capacities in Asia by 240,000 tons/annum by 2025, through the establishment of new facilities in India and Thailand. According to their press release, Birla Carbon expects their Carbon Black plants to be operational by FY25 to meet the rising demand in Asian markets. With Carbon Black prices trading around USD 1400/MT in Asian markets, significantly higher than in European markets, the introduction of new capacities could lead to a significant price reduction from FY25 onwards.

In European markets, Carbon Black supply has predominantly come from Russian markets through the supply chain in Hungary and Poland until July 2024. Prices remained subdued largely due to weak replacement tire demand in European markets, influenced by high gasoline prices and subdued private transport resulting from high rents and the cost of living. Despite restrictions by the European Parliament and sustainability initiatives, oversupply of Russian Carbon Black continues to affect Europe.

Recycled Carbon Black projects and alternative supply chains have triggered price increases in recent months due to a marginal increase in demand. Carbon Black prices are currently trading around $1100/MT in Europe, which is 60% below the pre-pandemic price. The addition of new capacities in Asian markets, with a special emphasis on specialty Carbon Blacks, could further reduce European Carbon Black prices as European markets continue to face high interest rates and inflationary fuel prices.

According to the OECD, general consumption recovery in Europe is expected to begin in FY25 provided there are significant rate cuts in FY24. The European Central Bank previously announced that rate cuts could only be possible in the latter half of the year as inflationary pressures continue to persist despite falling consumer inflation.

In Asian and American markets, robust US economic recovery, coupled with slower economic recovery in China and strong growth in India, could drive the Carbon Black markets in FY24 and FY25. However, data indicates that Chinese nominal GDP remains lower than real GDP growth, indicating a strong deflationary trend as consumption and investment in China remain subdued despite insufficient policy support.

Despite a record for the first month of FY24, Chinese demand continues to remain below potential. Carbon Black supplies have remained higher than demand sentiments, with prices falling by 12% in the last two months of FY23. With the introduction of newer capacities and slower Chinese growth, Asian markets are expected to experience further deflationary pressures in the Carbon Black market. Trade negotiations and geopolitical concerns between China and the G7 nations are anticipated to keep trade volumes between the EU, US, and China below pre-pandemic levels, affecting macroeconomic aggregates and keeping Carbon Black prices on the lower end.

ChemAnalyst’s analysts continue to anticipate a stable rise in Carbon Black prices for now, as feedstock pressures persist due to disruptions in the Suez Supply chain and crude prices.