• PAGE ONE
• INDEX
• HOME

Carbon Black: Flat trend to continue

AFTER a price revision towards the end of the calendar year 2000, the carbon black producers have seen a flat trend realisation in the recent months.

Carbon black is a key input used in the manufacture of automotive tyres.

Close to 70 per cent of the production is consumed by the tyre industry, while mechanical rubber goods account for about 18 per cent of the demand.

The carbon black offtake, therefore, hinges on the trend in tyre production. After a sharp rise during 1999-2000, the automotive tyre production declined steadily in the previous fiscal. This has affected the demand for carbon black.

However, the price hike effected by carbon black producers in the previous fiscal was in response to the sharp spurt in input costs. Carbon black feed stock (CBFS) is the key input for carbon black production.

As almost the entire requirement of CBFS is sourced through imports, the fluctuations in the value of rupee have an impact on CBFS prices.

The sharp decline in the value of rupee coupled with the spurt in the crude oil prices had pushed up the cost of CBFS. As a result, the carbon black producers were forced to effect a price hike in the region of about 6-7 per cent during the latter half o f 2000. The demand in physical terms, however, saw a decline in 2000-2001 compared to the previous year.

As far as the outlook for carbon black is concerned, the scope for a further price rise appears rather remote as the demand from the tyre industry is yet to improve.

Moreover, the recent soft trend in crude oil price would also lead to a corresponding drop in CBFS and carbon black price. Hence, for carbon black producers, increase in volume rather than rise in price would be the key driver of earnings.

Internationally, the carbon black prices have ruled relatively firm on the back of a steady demand and rise in input costs. They presently rule at around $480-500 per tonne. Taking into the account the slowdown in the American and Japanese economies, the scope for a major price rise appears bleak.

Domestic prices currently rule at around Rs 35,000 per tonne. Carbon black imports attract a duty of 35 per cent. At current levels, local prices are lower compared to the landed cost of imports.

The sustained depreciation in the value of rupee would also act as a protective veil against cheaper imports flowing from the South-East Asian region.

For the top carbon black producers such as Indian Rayon, Philips Carbon and Cabot India, the improvement in demand from the tyre sector is the only hope for an increase in earnings. The scope for hike in prices appears relatively remote. Given the contin ued depressed trend in the tyre sector, carbon black producers are unlikely to see any significant growth in performance. -- BL Research Bureau