Oil price “lower-for-longer”

Goldman Sachs analysts today issued a “New Oil Order” report in which they predict oil prices to stay at lower levels for the next five years (BloombergReuters).  They also see an increased M&A activity in the oil & gas sector over the next 12 months. “Lower-for-longer” was already mentioned by BP CEO Bob Dudley in an April note, although he did not confirm any M&A activity for BP.

Lower-for-longer” especially impacts companies in the oil value chain, such as polymer or carbon black manufacturers who trade on oil indices (e.g. for carbon black: 1% sulphur fuel oil FOB barges Rotterdam acc. to Platts quotation). These companies have to overcome oil (& gas) price volatility and corresponding profitability shocks with cost reduction programmes while remaining flexible for future market developments.

A positive side effect for European manufacturers could be the reduction of Asian imports due to both low price levels in Europe and the low Euro-exchange rate. “Lower-for-longer” also may impact the introduction of other carbon black substitutes such as tyre pyrolysis carbon black, although I take the stance that this “green” carbon black product should not be sold on price incentive but rather on sustainability.

It is in times of low prices and low markets when companies can outrun their competitors through better management of challenging conditions. In high markets, there are no resources and processes are pretty much on autopilot. Low markets also stimulate differentiation by innovation.

Let’s crush the competition and be thankful for “lower-for-longer“!

If you like this post please share, comment and talk back!

Martin von Wolfersdorff is principal consultant at WOLFERSDORFF CONSULTING. He helps chemical companies optimise sales & strategy and connects OEM companies with innovation providers. Martin also has expert knowledge in titanium dioxide, custom colour masterbatch, carbon black and tyre recycling materials like recycled carbon black and devulcanised polymers. He has held various roles from R&D engineer to commercial director EMEA at ICI, Huntsman Pigments, Americhem Europe Ltd and Cabot Switzerland GmbH.

For more frequent updates, follow him on Twitter @m_v_w and on LinkedIn.

Your guide to the expertise economy

We live in an information society, where a lot of information is just a click away. Everything Google, LinkedIn or XING do not readily find for you is typically a phone call away. But what if you don’t have the relevant contact network of experts for your primary research? Then you make use of expert networking platforms. This is a 20 years young industry brokering between information seekers (clients) and subject matter experts (advisors). In this post, I am introducing the top 4 platforms along with my experience using them.

The number one – Gerson Lehrman Group (“GLG”)

GLG are the leading and most established information company. Founded in 1998, they have more than 400,000 advisors for one-on-one learning and more than 1,400 client companies. GLG is headquartered in New York with 22 offices globally and 1,000 employees. At GLG, advisors are called “council members”. As a council member, I had so far a couple of consultations with big game consultancies about chemical industry topics (e.g. feedstocks, pricing, supply chain). Compensation is usually 300$ per hour of phone consulting (with billing per minute) and their website is very convenient and easy to use.

The runner up – Guidepoint

Guidepoint launched in 2003 and currently have offices in New York (HQ), London, Düsseldorf, Singapore, Shanghai and Hong Kong. In 2009, Guidepoint acquired Vista Research from Standard & Poor’s. In the same year, Innosquared GmbH was founded in Düsseldorf, Germany, with a focus on the European primary research market. This February, Guidepount also acquired Innosquared GmbH. There are about 500 current clients and 50,000 experts available in Guidepoint’s global network. I signed up as an advisor with both Innosquared and Guidepoint, but had not have any enquiries so far. Currently conducting a niche market study, I have sent a web enquiry which was answered within minutes by a very helpful Senior Vice President from the Düsseldorf office. Guidepoint typically sell subscriptions of 10-20 hours consulting to their clients, which requires a budget of about 10,000 – 20,000 €. That is about 1,000 € per hour in total and probably some 200-400 € paid to the subject matter expert. For my purposes as a start-up consultancy, this was cost prohibitive. But the good service of my Guidepoint contact did not stop there. He even recommended my to have a look at another company, 10EQS.

The crowd-(information)-sourcing platform – 10 EQS

10EQS (pronounced “Ten X”) was founded in 2011 by Eberhard von Löhneysen. Offices are located in New York, Lugano (Switzerland) and Singapore. While 10EQS also has a client (“get a job done”) and advisor (“start to work”) side, the work model is different and not one-on-one. Advisors can choose between three roles, “experts”, “collaboration managers” and “business analysts”. I have just signed up today and I am curious to also explore this platform from both the client and advisor side.

The web search engine – Zintro

“ A Google search returns web-sites and content. A LinkedIn search returns peoples’ profiles. A Zintro search returns private responses from subject matter experts ready to help address your business or technical needs.”

Zintro‘s webpage looks like a web search engine. The Waltham, MA/USA based company says it has more than 100,000 experts registered and about 20,000 clients. I have signed on both as expert and client. As expert, I get about 2-3 enquiry emails per day, but no matter how I tweak my profile, I have not yet received a truly relevant and interesting enquiry. As a client, I have created an enquiry and quickly had one relevant and knowledgeable expert replying (and no other reply till today). I also got an email from Zintro’s “Expertise Agent”” to help me with my enquiry. I will talk with them in the next few days. While I like the convenience of the search engine approach, I think that quality-in means quality-out. I am not yet convinced of the Zintro approach…

If you like this post (and/or my other posts), please share it, comment on it and talk back to me!

I would love helping you with sales acceleration, sales process excellence and social selling as well as my expertise on titanium dioxide pigments, custom colour masterbatch, carbon black, recycled carbon black, devulcanised rubber polymers, import/export trade statistics and many more.

Sales success with tailored trade stats

A great portion of your sales success depends on the market information you have at your fingertips. On the one hand, it is essential to cultivate your personal and online industry network in order to exchange on latest market and company developments. On the other hand, quantitative data like month-on-month import/export market volume developments and average market pricing by country are typical staples in the commercial toolbox. Many chemicals and material industries are closely monitoring import volumes from China, Russia, Korea or other low cost countries.

Without having the luxury of a great business analyst (and I think everyone should have one! Hello Paul! Hello Cully!), it will be tedious to aggregate, consolidate and visualise the big data obtained. You might also risk to purchase expensive subscriptions providing data not tailored to your requirements.

Contact me if you are interested in affordable bespoke trade reports and charts (for example like the image above)!

I am working with an expert provider who can tap into various databases and who will tweak & tune reports to your needs, including your company templates & logos. Any trading material with a Harmonised System (“HS”) trade code can be monitored.

Optimising the chemical distribution channel

Value Creation in distribution:

Today’s distribution business has evolved far beyond the small lot business of typically less than half truck load deliveries: In southern and Eastern European markets, where payment terms can be in excess of 90 days and where the credit risk is high, business would be difficult without the help of local and financially stable distribution companies. Having a range of strong principals and a market specific, full portfolio of key raw materials (branded polymers in particular) helps cross-selling efforts in distribution, up to packaged and modular offers. Very often, distributors are closer to customers, thanks to their diverse product portfolio. Strong local contacts, language and brand of the distribution partner enable principals to set a foothold in foreign markets, especially across regions. Distribution partners are supporting the local manufacturing and service network and help improve customer response in areas of low principal presence. Other servicesoften include repackaging / decanting, technical and lab services and trade fair representation. Distributors are small scale business multiplicators and can help grow business in a subtle way, avoiding immediate competitive action.

The point of view in distribution:

Major distribution companies have been promoting their hub-and-spoke business model for decades, striving for pan-regional distribution mandates. Often, pan-regional growth could then be realised when principals had to close offices or when local distribution companies were acquired by larger companies. Service levels of a typic pan-European distributor, however, tend to vary from country to country.

Despite this consolidation, there is a huge number of small distributors with either a strong geographic presence (in southern Europe in particular) or a specialisation in a specific industry sector (e.g. food, drugs). Some distributors have specialised on imported raw materials (e.g. from China and Russia), with very sophisticated supply-chain and forwarding technologies. It seems that chemical distribution markets are stable and growing for most industry sectors. The reason for that growth is the service level distributors provide and the customer proximitydistributors have. Much too learn for principals who often come from the other angle of simplifying offers and tending to volume business rather than value business. A healthy and mutually business inspiring collaboration between principals and distributors can help to strike a good balance between both.

The point of view at principals:

Principals tend to govern distributor customer activities with “no-go” exclusion lists. This is a policy easy to implement, but it leaves a lot of opportunities on the table. It is good practice to integrate the distributor’s sales team as far as possible into the principal’s sales team with joint sales meetings. The principal’s sales force will likely benefit from the rich customer and market intelligence of the distribution team. The distribution team, in turn, will benefit from a deeper understanding of market dynamics and technology relevant to the principal’s products. Apart from joint meetings, it is also good practice to meet both the principal’s key accounts and the distributor’s SME customers together in joint customer-distributor-principal meetings.

Many principals desire more transparency and simplicity in their distribution network, which often results in consolidating distributors. How many distributors is an ideal number to have in a given region? This is difficult to specify. One is maybe too few (and too much bargaining power for the distributor . . .). 50 is maybe too much if the principal wants to leverage market intelligence from all of the distributors. As mentioned above, it will also depend on geographic / language and market sector aspects in the region. In Europe, I would feel comfortable for a principal to have 5 to 20 distributors.

For many principals, sales through agents / representatives and through traders / trading houses are complementary to their distribution sales. Both other channels have their purpose, for example to extend reach and to sell on the spot market. There is less value add in those channels, though, and collaboration might be limited to order-by-order (traders) or to specific customers (agents).

Conclusion

There is only one stable thing in the chemical industry and this is change. A close collaboration between principals and distributors will help both partners react quicker and more appropriately to those market changes.

Where is the future of rCB?

This year might be a key year for the rCB (tyre pyrolysis recycled carbon black) industry, despite challenging market conditions for carbon black due to low oil feedstock costs. By now, key players of the industry have secured approvals with strategic prospects and while some are in the funding and construction stage, others are finding synergies in a merger. Some companies yet are considering the step from selling energy, pyrolysis oil or gas to developing a carbon black offer.

What do rCB products look like? As reported from various industry experts, most current rCB products fall into the triangle between N660-N330-N326, representing a crossbreed of the different carbon black products in tyres, while performing like N7xx in rubber applications. With current processes, the high structure of N550, the largest market volume ASTM category, cannot yet be achieved.

A fundamental strategic question is whether the future of rCB will be in bleeding-in small quantities (which conventional carbon black manufacturers do anyway in the form of recycling) and in blending (which some major tyre customers and distributors do in order to optimise between cost and consistency) or whether it is in tailored products (which would require tight(er) raw material and process control as well as bespoke upgrading processes).

In the current economical and legislational climate, the first scenario is probably a more realistic commercial entry. However, I think there are a lot of exiting developments ahead in form of application tailored rCB products which we might see in the coming years in both rubber and non-rubber applications.

What do you think?

Some trends for carbon black in rubber applications

  1. Consolidation: I think that consolidation (e.g. Birla / Columbian, Cabot/Nhumo and Tokai / CanCarb) and plant closures of inefficient, small carbon black plants (e.g. Orion’s plant in Sines / Portugal) will continue for the next years.
  2. Demand/supply: Although there currently might be a local over-supply of common carbon black products (e.g. ASTM categories and in particular N550), European industry consensus is that capacities might not be sufficient some 3-5 years down the line. Because of the volume nature of the business and slow communication especially in the tyre industry value chain, big switches of market demand in both directions are difficult to manage for carbon black makers.
  3. Greenfield: While new production sites in the western world were traditionally built in strategic proximity to both key consumers and key feed-stock suppliers, and many Chinese plants were built without a pronounced market need but gigantomania rather, environmental regulations and developments in sustainable technologies have given growth stimuli to start-up companies like Boxer Industries (USA, carbon black from natural gas), Black Bear Carbon (NL, carbon black from tyre pyrolysis) and Carbon Clean Tech AG (D, carbon black from tyre pyrolysis).
  4. Sustainability: Carbon black makers traditionally have challenges with the topic of sustainability. The industry is seen as dirty and indeed is an important consumer of mineral oil feedstock and a producer of CO2 burden. Considerable efforts and investments have been made by tier 1 players of the industry to reduce environmental impacts, in particular in the USA, where the EPA requires carbon black makers to upgrade their Sox and NOx systems. I think there are many opportunities in sustainability which go beyond compliance and this could soon be a differentiating and branding factor.
  5. Import threats: The Indian carbon black manufacturer Philips Carbon is the latest to join the club of carbon black importers to European markets, following Chinese and Russians. Many importers focus on basic products, very often on the volume selling ASTM categories like N550 in semi-reinforcing applications and N326 in reinforcing applications. There is, however, interesting innovation in the area of bulk handling in the form of “sea bulk” or “flexi bulb” systems, which can transport bulk carbon black in a regular sea freight container.
  6. Product innovation: The carbon black industry, as most chemical industries,  needs more innovation in order to increase differentiation and fight commoditisation. In the field of industrial rubber goods, the last large scale product innovation were “clean” extrusion products, introduced some 15 years ago by Cabot and now widely adopted even by tier 2 players. In tyre tread applications, silica has taken a part of carbon black usage thanks to rolling resistance and grip performance. New innovations from Cabot now aim to claim that space back with close to silica performance in rolling resistance and grip and the carbon black typical added benefit of much better wear and abrasion resistance.
  7. Service innovation: There still is considerable potential for carbon black service innovation, for example in the area of packaging, transport and storage.
  8. Go-to-market time: The time required to implement new carbon black products is long. The last innovation in industrial rubber products were products with low polycyclic aromatic hydrocarbons (“low PAH”). After a couple of years, these products are not yet widely demanded by the market while regulation and standard test methods are still being changed. Tyre producers can take up to 7 years for new carbon black product implementation, while producers of industrial rubber products can require 1-2 years, depending on the end use. Better collaboration in the whole value chain could accelerate this process.
  9. Energy centres: The valorisation of furnace process flue gases into energy is an industry standard and significantly improves economics. Careful management is required in times of down turns when plant occupacity is going down and economics shift.
  10. rCB: A relatively new entrant to carbon black markets has previously been more focused on energy production: The tyre pyrolysis industry. I see big opportunities for a collaboration between established carbon black players and producers of recycled carbon black (rCB) from tyre waste. Pyrolysis companies have challenges entering carbon black markets, while the carbon black industry craves green product innovation. However, the product expectation level has to be managed. Even replacing carbon black with another furnace process carbon black rarely is a case of 1:1 “drop-in”.
  11. Distribution: Catalysed by many small rubber companies who give up compounding on their own and start buying from custom compounders, the small lots distribution market for CB in Europe is in steady decline and the market for compounds has increased. For me, there still is a lot of value creation in the collaboration with a good distributor: Aligned and integrated sales strategy,  exchange of market information, collaboration at joint accounts, repacking, transport services and many more.
  12. Compounding: Rubber compounding is very similar to plastics compounding in that the value proposition is not a product only, but a custom tailored service. The competitive landscape is segregated with many smaller, highly specialised compounders on the one side and big global compounders on the other side. In the last down turn, even extrusion companies have entered the compounding market in order to fill their compounding capacities and to leverage their raw material purchasing power.

About interpreting opposites

I have just received a new video cast lapel microphone. On the packaging I am kindly reminded that there could be a strangulation hazard as the cable is reinforced with Kevlar. Hhm, could be a useful suggestion if needed some time . . .
Yesterday, I spoke with a business contact bringing new bamboo products into the market, for example a range of bamboo ready-made drinks. He said that the Red Bull plus vodka mix was born when the company advised that their drink should not be mixed with alcohol.
Very few people are able to process a “no” or a “don’t” (just think of your children ;-)). This has a more scientific explanation than just juvenile denial. My wife, who is a psychologist, explains that the human brain indeed has trouble processing a negative meaning. Which is why I don’t like the old-fashioned phrase “Do not hesitate to contact me”. We do exactly the contrary. We hesitate. While the Red Bull marketing team created a hype with their warning, I suppose the manufacturer of my microphone does not really intend consumers to keep a second possible product use in their mind.