Carbon black manufacturers in Europe are gearing up to meet one of their biggest challenges as key end-user industries of this material increasingly shift their production facilities from western Europe to the comparatively low-cost central and eastern Europe (CEE) region. The task of transporting carbon black from existing manufacturing plants in western Europe to end users' facilities in eastern Europe is both expensive and uneconomical, creating enormous difficulties for manufacturers.

"Carbon black manufacturers are feeling increasing pressure to maintain a presence in these regions, and this is driving some of them to invest in the CEE regions to continue supplying to existing key clients while attracting new business," remarks Frost & Sullivan Senior .Research Analyst Mahesh Kumar S. "While this may be feasible for larger and well-established participants, smaller companies will find it difficult to compete under such conditions."

Shifting to low-cost regions or investing in new facilities could give manufacturers a strong advantage in terms of proximity to key markets, helping them target existing and emerging markets. Such a move could also provide logistical benefits in terms of enabling them to identify new markets to cater to in the future.

While shifting to low-cost regions may bring short term benefits, carbon black manufacturers are likely to continue to depend on western European countries for the majority of their business. However, stable demand from end-user industries, especially tyre manufacturers, will continue to sustain market growth. This segment is the largest consumer of carbon black, accounting for almost 65 percent of the total European market.

"Steady demand from key end-user industries continues to provide sustainable business options for active carbon black manufacturers," says Kumar. "Growth in automobile demand and the subsequent increase in tyre manufacturing provide reasonable scope for increase in volume consumption, while speciality applications are likely to yield higher profit margins."

However, rising prices of crude oil derivatives present a major challenge since carbon black production is highly dependent on these raw materials. Increasing prices have not only affected the distribution chain, but has also eaten into manufacturers' potential for profits, obliging them to adopt cost-cutting strategies to sustain business.

"Investment in new technology, minimizing distribution costs and early identification of key specialty application markets can help carbon black manufacturers compete at sustainable levels," concludes Kumar. "Reducing dependence on a few end users by widening their product portfolios may also provide an advantage over competitors."