As an equity analyst, I am responsible for finding attractive industries and publically traded securities for institutional investors to invest client funds. So what is it about the carbon black industry that makes it one of our top sectors to invest in?
For starters it is a growing industry with emerging regions reaching new highs while mature regions are recovering towards prior peak levels. Supporting this growth is the billions of dollars being spent on new tire capacity over the next several years creating significant demand for carbon black. A new twist for the industry is the on-shoring of tire capacity back into the United States which is creating very favorable supply vs demand conditions for U.S carbon black producers. In fact, we anticipate a shortage is likely over the coming years as a result of an inability to add carbon black capacity due to the Environmental Protection Agency's (EPA) review of the industry leaving opportunities for those that can find economical ways to import product into the U.S. With utilization rates climbing quickly towards 90%, pricing opportunities could be a reality in the U.S. as soon as 2015.
Additionally, "self-help" margin enhancement opportunities exist for carbon black manufacturers as technology improves and modern reactors are able to provide better yields on feedstock and heat-recovery equipment is able to improve energy efficiency.
Finally, the industry structure is favorable with a handful of global manufacturers and a reasonable amount of regional players while substitute products (i.e. silica) remain a minimal threat. To sum it up, we expect continued global volume growth which should result in improving utilization rates and potential for regional pricing power, all of which will support stronger earnings and improved cash flow......a winning recipe for any investor.
About Northcoast Research
Since 2009 we've built a firm with a specific and differentiated equity research product, and have had significant success helping our clients outperform. Our research effort includes 11 senior analysts averaging 22 years of Wall Street experience, 18 Associate analysts and a rotating pool of 5-6 Research Interns. Coverage approximates 150 companies in 4 industry verticals, including Consumer, Industrials & Basic Materials, Healthcare, and Business Services, and our specific discipline emphasizes a process we refer to as Northcoast Market Research [NMR]. For each covered company and industry, we develop a thesis, identify the key drivers of that thesis, establish benchmarks and regularly monitor performance v. those benchmarks through extensive channel check work. This process ensures consistency across our coverage and allows us to discern inflection points for both companies and industries.