Friday, November 13, 2009

Carbon black maker Cabot finds good returns in cleantech

By Jackie Noblett

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Twenty years ago, few people would have considered Cabot Corp. an environmentally progressive company.

The Boston industrial materials company’s bread-and-butter product — carbon black, a fine black power used to make tires and wire insulation — is made through burning the undesired parts of oil sludge, producing particulate pollution and tons of greenhouse gasses. Cabot was targeted by environmental groups as one of the United States’ largest polluters. While this process is unlikely to change for years to come, the 4,000-employee company is, however, trying to improve its environmental image both at home and around the world.

“It’s a very different company now than what people would have thought 15 years ago,” said Susannah Robinson, Cabot’s director of investor relations.

Cabot’s efforts to clean up its processes and cut its carbon emissions by 20 percent by 2020 is not all about corporate citizenship, however. An effort to focus more production in lower cost, high-growth facilities in Asia is forcing the company to play by those countries’ rules, including curtailing pollution and environmental hazards. Some efficiency projects also help those facilities operating margins by reducing energy demand or by selling back power to local markets.

And company officials concede Cabot’s drive to develop products for the energy efficiency and alternative energy sectors is not to green up its product portfolio, it is to become a player in a fast-growing market.

Carbon black is both Cabot’s dirtiest product as well as its most important. About $1.3 billion of the company’s $2.2 billion in revenue in the fiscal year ending Sept. 30 came from carbon black sales, but those sales fell 31 percent and profit fell 69 percent compared with 2008 because of contraction in the automotive and electronics industries.

To maintain profits, Cabot announced in January it would shutter facilities in lower growth areas like North America and Europe, cutting some 500 positions across the company, and began transferring resources into a new facility in China. While this effort was intended to help improve margins, it also forced the company to confront new efforts by foreign countries to curtail emissions from foreign entities.

“China and frankly all of the emerging countries have very strict environmental regulations and we’re doing   process-oriented research to make sure we meet those environmental permits,” Robinson said.

She said the company is meeting these regulations through energy centers, which take waste gas from carbon black manufacturing and generate energy that can run its own operations or be sold back to local power grids. It is also developing methods to increase the yield of carbon black produced from a set amount of oil, improving both profit margins and emissions.

These efforts are not cheap, however. Each energy center costs between $20 million and $30 million, and Cabot intends to build units in Brazil and China in the next several months and three additional projects in the coming months. Company executives expect to have 75 percent of its production capacity retrofitted with the systems, compared with 40 percent to date.

But when pressed by KeyBanc analyst Saul Ludwig in a conference call last month on what benefits they have, CEO Patrick Prevost said Cabot is getting returns of 15 percent to 20 percent by reducing the variable cost of energy.

“At those levels they are strong value contributors to the rubber blacks business, or the carbon black business for that matter,” he said.

Cabot’s 500 employees in Massachusetts are geared toward research and development and production of inkjet colorants, not carbon black production.

Cabot is also looking to environmentally friendly products to broaden its product portfolio. The company has developed a line of aerogels, lightweight, clear insulation used in oil and gas pipelines and translucent building materials, and is conducting research on particles that could improve the efficiency of solar cells. Yet those businesses are far from being profitable ­— aerogel business revenue in 2009 grew to $15 million from $10 million, but the overall new business segment posted a $10 million net loss.

The company’s emissions reduction efforts place it ahead of most rivals in the materials sector. Cabot ranked sixth among 26 S&P 500 materials that reported their carbon emissions to the Carbon Disclosure Project, which maintains the world’s largest database of corporate greenhouse gas emissions.

“The overall performance of the sector is encouraging,” the report states. “How the materials sector continues to meet the growing demand for its products whilst using natural resources in a sustainable manner and concurrently reducing emissions will be a key challenge for the sector in the years to come.”