We think that Orion Engineered Polymers and its fellow traditional carbon black producers could be in for a rough ride.
- Orion to implement surcharge on all European carbon black products. Per this report, Orion Engineered Carbons bases the surcharge on higher CO2 costs and notes “The EU ETS has entered its fourth trading phase (2021-2030) resulting in additional costs based on direct CO2emissions for the carbon black industry.”
The headline above talks about surcharges in Europe because of the higher costs of carbon, and one way or another higher carbon costs will eventually impact the business in the US, even if we do not have a robust carbon market there today. The added problem for these producers is new technology and a couple that we are watching closely. Monolith started life as a carbon black producer with hydrogen as a by-product but has pivoted to become a hydrogen producer with carbon black as a by-product. While this is a natural gas-based business, it has no CO2 production and would not be subject to surcharges like Orion and others. Separately, newcomer Origin Materials has a process to produce PET precursors from wood pulp but makes a carbon black-like by-product that can substitute in many carbon black applications, and in some cases is a better product. Origin is at the pilot plant phase (and so has a fair degree of technology and scale-up risk today) but if the company can deliver on its internal expectations, it could be a game-changer for PET and a disruptor for carbon black. We believe that the existing carbon black producers will have to look for ways to decarbonize – most likely through CCS or face being squeezed out over time. Below, we take a slide from a recent Origin Materials presentation, we could not find anything illustrative on the Monolith site, but the more they can make from hydrogen sale the more willing they will be to discount the carbon black. See more in today's ESG and Climate report.
