A Potential USD 200 Million Opportunity: What EU’s ban on Russian Imports mean for Indian Carbon Black Producers
India stands as a significant consumer of carbon black, a vital raw material in tyre manufacturing. The automotive sector has seen a marked global shift from the West to the East, notably in the Asia Pacific region, over the past two decades. In tandem, tyre manufacturers have followed suit. Presently, India holds a prominent position as a leading tyre manufacturer and ranks fourth in automotive production globally.
The robust growth in tyre production over the years has propelled carbon black consumption within India. While the country has historically maintained adequate domestic supply to meet demand, significant volumes have been consistently imported, keeping India as a net importer of carbon black.
However, a pivotal shift occurred in 2022, marking India's transformation into a net exporter of carbon black. This transition can be attributed to the surge in domestic supply over the last five years and the imposition of stricter import regulations, resulting in reduced competition among manufacturers and subsequent increased production volumes. According to Prismane Consulting's database, the current annual carbon black capacity in India exceeds 1,850 kilo tons. This carbon black capacity is divided among seven producers, prominently led by PCBL, a division of the RP-Sanjiv Goenka Group, boasting an annual capacity of 770 kilo tons across five locations. Notably, PCBL commissioned a 147 kilo tons Carbon Black plant in Tamil Nadu in 2023, further bolstering their position. In 2022, PCBL accounted for over 70% of India's carbon black shipments.
The chart below illustrates India's carbon black trade from 2016 to 2022, showcasing a doubling of export volumes in the past four years.
Following one year into the Russia-Ukraine war, the European Union (EU) announced a ban on crucial tyre raw materials such as carbon black and synthetic rubber imported from Russia, set to be enforced from July 2024 onwards. The EU has always been a net importer of carbon black and will remain a net importer in the coming years with domestic production primarily centered among six to seven producers. Notably, some domestic EU producers also depend on Russian natural gas as feedstock for their production processes.
However, in the aftermath of the conflict, there has been a substantial decline in Russia's share of imports to the EU. In 2021, Russia accounted for three-fourths of the EU's imports, which significantly reduced to half in 2022. This void in supply was mitigated by a significant influx of volumes from China. Additionally, India, which had a negligible contribution in 2021, emerged as the fourth-largest carbon black exporter to the EU in 2022.
The trade partners for India's exports in 2021 and 2022 are illustrated in the chart below:
Source: UN Comtrade, DGFT and Prismane Consulting Estimates
What EU’s situation means for India?
As the impending deadline approaches, the EU has managed to reduce its reliance on Russian sources to 40%. While domestic European carbon black producers are hastily investing in new capacities to compensate for the absence of Russian supply, this success can only go so far. The 40% remaining dependency presents a substantial share that will be challenging to replace domestically. Consequently, it's highly probable that the EU will increasingly depend on producers from Asia and the Middle East following the ban's implementation.
India stands as one of the primary contenders for the EU's carbon black imports. Representing a 4% share in the European Union's 2022 imports, India is poised for a substantial increase in the coming years. Currently, Indian supply isn't fully utilized, with carbon black plant operating rates averaging in the 70s. The surge in EU inquiries is expected to prompt producers to boost these operational rates, ensuring them heightened profits. New plants are also on track to be added in the forthcoming years in the country. Epsilon Carbon will expand its carbon black production facility at Bellary, Karnataka by 100 kilo tons in 2024. Continental Carbon announced its intention to build a new plant at Dahej, Gujarat with an annual production capacity of 150 kilo tons in late 2022. Birla Carbon will augment its capacity by 80 kilo tons in India, as part of its 200 kilo tons/year global capacity expansion plan. Furthermore, the company recently revealed greenfield investment plans in both India and Thailand. By 2025, a new 120-kiloton carbon black production facility is set to become operational in Andhra Pradesh, solidifying the company's position in the country. New plant additions and expansions will thus guarantee sufficient supply for both domestic & foreign operations.
With European tyre manufacturers already displaying increased interest, Indian carbon black producers are bracing to fill the supply gap. The international market appears lucrative for them, aligning with their aspirations of establishing a global presence. However, importing from non-Russian producers will undoubtedly be costlier for EU buyers due to freight premiums. It remains to be seen how long this dynamic will persist, especially considering the ongoing war situation without a clear end in sight. From an Indian perspective, replacing at least 15% of Russian imports represents an additional opportunity exceeding USD 200 million.
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