Q4 2021 Orion Engineered Carbons SA Earnings Call
Yeah.
Greetings and welcome to Orion engineered carbons fourth quarter 2021 earnings conference call.
At this time all participants are in El Smelly mode.
A question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll hand, the conference over to Wendy Wilson head of Investor Relations and corporate Communications Wendy you May now begin.
Thank you operator.
Good morning, everyone and welcome to Orion engineered Carbons conference call to discuss our fourth quarter and full year 2021 financial results.
I'm, Wendy Wilson head of Investor Relations.
With us today are Corning painter, Chief Executive Officer, and Bob Hrivnak, Our interim Chief Financial Officer.
We issued our press release after the market closed yesterday, and we also posted a slide presentation to the Investor relations portion of our website.
We will be referencing this presentation during the call.
Before we begin I'd like to remind you that some of the comments made on today's call are forward looking statements.
These statements are subject to the risks and uncertainties as described in the company's filings with the SEC and our actual results may differ from those described during the call.
In addition, all forward looking statements are made as of today February 18th.
The company does not undertake to update any forward looking statements based on new circumstances or revised expectations.
All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release.
With that I'll turn the call over to Corning painter.
Thank you Wendy and good morning, everyone and welcome to our earnings Conference call.
In 2020 , one we executed an excellent recovery in our business from the previous year with increased demand for our higher margin businesses full year, adjusted EBITDA was $268 $4 million a year over year increase of 34, 2% and our second highest ever.
<unk> with specialty representing about 55% of it.
As expected fourth quarter results were weaker versus last year, reflecting the ivanhoe startup and a large number of turnarounds, which limited our ability to take advantage of market conditions, coupled with the global supply chain challenges impacting some customers as well as higher raw material and logistics costs.
Specifically fourth quarter, adjusted EBITDA was $52 $3 million down 28% from the fourth quarter of 2020.
Beyond delivering solid financial results in 2021, I'm very proud that the team successfully executed on several key initiatives, we reinstated our dividend with an interim payment on January 12, 2022, we completed and commissioned our extensive air emissions control work at our.
Ivan Who's site.
<unk> also completed and commissioned a new reactor line in Ravenna.
Finally, we achieved several important product qualifications.
A big congratulations to the team on these milestones, which set us up for future success.
We have two more air emissions upgrades to complete in the U S.
I can assure you that they should not be as difficult as the Ivanhoe project was as we've entered into a lump sum turnkey EPC contracts using more traditional technology for both of the remaining sites significantly derisking those projects.
We are determined to recover the higher operating costs associated with these control projects and to achieve an adequate return on the invested capital.
In Ravenna them, we started shipping qualification samples to our customers as we work with our customers through the qualification process. We expect aggressive loading in 2022, which has been included in our guidance. We broke ground at our Bay, our first Greenfield plant as Ryan.
Scheduled to ramp in 2023 and 2024, it will produce 65 to 70 kilo tons per year of specialty in a high performance carbon black.
This greenfield plant as well as our Ravenna expansion, our key projects to lay the foundation for a substantial increase in our long range earnings power by contributing roughly $30 million to $40 million of adjusted EBITDA at steady state levels, representing an excellent example of the sort of value.
<unk> investments, we intend to make from a capital allocation perspective.
We have many attractive growth opportunities on the horizon. Our primary focus is on expanding the capacity of our cap a line of ultra pure conductive additives.
We are one of only a handful of global producers, who use high purity gaseous acetylene to make conductive additives or cap of products are in high demand for lithium ion batteries and other applications and we view this opportunity as a key additional driver for further profitable growth.
And our conductive business we.
With approximately $15 million to $20 million of EBITDA generated from our conductors business in 2021 and growing to the mid Twenty's in 2022.
We look forward to sharing progress in this area later this year.
Okay.
Turning to slide four how we address the environmental impact of our operations. The stance, we take on social issues and the governance practices, we embrace define our true values and what we are as a business.
Within this ESG framework, we have made some notable progress towards a more sustainable future for our customers the company, our global communities and our other stakeholders that we serve.
Critically I draw your attention to the first item sustainability is core to our growth strategy. This means that we put a focus on connectivity for evs and on sustainable carbon Blacks. For example in addition to our participation in the Black cycle project, where we are working to enable the development of.
Circular economy by using extracted oil from end of life tires as a circular feedstock. We are also working to develop additional processes to replace fossil fuel based feedstock with renewable oils.
We believe there is strong demand for such products in 2022, we will be expanding our innovation teams significantly to support these important efforts I want to thank the team for their work so far and expect further progress in 2022 and beyond.
Turning to our fourth quarter results in greater detail as you can see on slide five adjusted EBITDA declined to $52 $3 million year over year, primarily reflecting our now completed ivanhoe startup as well as other major turnarounds in the quarter and supply chain challenges we.
Experienced shipping our high margin specialty products from them out to customers in APAC.
Higher raw material costs and energy costs affected results with quarterly average oil prices that increased 50% year over year.
Fourth quarter results were also affected by higher fixed costs, reflecting higher incentive compensation and maintenance costs due to the heavy turnarounds as we expected.
Importantly, we do not expect these factors to persist in 2022.
As a matter of fact, we expect the upcoming year's results will be quite strong based on our pricing initiatives in 2021 higher projected volumes based on new qualifications and wins expanded capacity with our event of startup as well as fewer turnarounds in the coming year. We're also entering a peer.
Of demand that is outstripping global supply growth and Thats an added positive.
That concludes my opening remarks for the remainder of today's call, Bob and I will cover fourth quarter results in greater detail and our outlook for 2022.
After our prepared remarks, we'll be happy to take your questions.
Bob.
Thanks Corning.
Revenue increased 24, 4% year over year, primarily reflecting the impact of passing through higher feedstock costs, partially offset by lower volume.
The impact of unfavorable product mix and foreign currency translation.
Contribution margin decreased nine 9% year over year.
Mainly due to higher energy and shipping costs.
Lower volume.
Unfavorable product mix and foreign currency translation.
Adjusted EBITDA decreased 28% year over year, reflecting lower volume unfavorable product mix and higher fixed costs attributed to a heavy quarter for turnarounds.
For 2022, our expectation is that we will have considerably fewer downtime hours versus last year.
Yeah.
Finally, we reported adjusted net income for the quarter of $10 $7 million down approximately 55, 4% year over year on lower adjusted EBITDA.
While we mentioned in our past two calls at the end of the year would be relatively weak to the remainder of the year.
We do expect 2022 to be a strong year the factors affecting our fourth quarter will not persist.
On slide seven you will find several useful bridges that provide greater financial details supporting the comments I just shared on our quarterly results.
On slide eight you can see that we are providing an additional guidance matrix in 2022.
Based on our forecast, we expect 2022 adjusted EPS to fall within a range of $1 90 per share to $2 20 per share.
Up over 18% from 'twenty to 'twenty, one building upon the positive trend, we experienced last year and the confidence we have in our future financial performance.
Yeah.
Slide nine details our year to date cash generation, which is essentially flat.
With the favorable impact of strong financial performance and receipt of the <unk> settlement proceeds largely offset by the net working capital increase of $98 million and EPA related investments.
Most of the increase in networking capital was attributed to higher oil prices.
As a reminder, when oil prices rise or working capital increases by roughly $30 million for every $10 change per barrel of oil and our feedstock cost.
Our net leverage ended the year at two seven times slightly above our targeted steady state net leverage range of two to two and a half times.
We expect that to improve in fall.
Into our target range and 2022 based on our strong forecast for the year.
As we look forward, our strong financial standing and capital structure positions us well to fund and execute the remaining EPA investments as rapidly and safely as possible while also advancing growth initiatives that bolster our.
Ernie capacity.
We also anticipate higher discretionary cash flow beginning in 2023 as EPA investments ramped down.
While our Ravenna production ramps up this year and our Huawei expansion ramps up in 2023 and 2024.
Okay.
Moving to slide 10 specialty volumes declined eight 6% year over year, primarily reflecting lower customer demand in the quarter that should not continue.
And the supply chain issues, we mentioned earlier in the call.
Specialty revenue increased year over year, driven by pricing to recover inflationary pressures.
Firstly offset by lower volumes.
Supply chain challenges, mainly impacted the EMEA and Asia Pac regions, partially offset by North America.
Despite the fourth quarter results as shown in the trailing 12 month gross profit per ton chart. You can see that specialty profitability is approaching levels that are well above 2019 and levels not seen since 2018 driven.
By extremely favorable mix, including the positive impact of newer products and improved pricing higher loading rates and associated operating leverage.
The next slide breaks out the major year over.
Year drivers of adjusted EBITDA for the specialty business in greater detail the.
The most significant of which were slightly lower volume and improved price.
Partially offset by higher raw material costs.
Europe in particular saw extraordinary energy cost escalation in the quarter and we will continue to advance specialty pricing in the face of this.
Turning to slide 12.
Lower volumes translated into rubber carbon black adjusted EBITDA of $22 million.
$18, 5% below year ago levels.
Specifically volumes were down five 3% year over year.
Primarily reflecting our turnaround in ivanhoe in other locations.
As well as a now settled strike that impacted.
Key Korean tier customer.
Which prevented us from taking full advantage of robust market conditions.
Replacement tire demand continues to be relatively stronger than OE demand, reflecting the impact of the ongoing chip shortage on automotive production levels.
Slide 13 breaks out the major year over year drivers of adjusted EBITDA for the rubber business in greater detail.
With the impact of lower volume unfavorable mix and higher fixed costs driving the majority of the decrease.
With that I will turn the call back over to corn.
Back in early 2020, we set the goal to take action during the pandemic. So that we will emerge stronger from it.
The pandemic may not be over yet, but I believe we have emerged stronger I believe 2022 will be an excellent year for us driven by all of the things that we've done the outcome of the pricing cycle and a general supply demand imbalance in our markets. For example, global utilization rates are projected to be <unk>.
<unk> 300 basis points higher in 2022 versus 2019, according to notch consulting.
Our full year adjusted EBITDA guidance is $300 million to $325 million up over 16% at the midpoint.
We're establishing adjusted EPS guidance for 2022 with a range of $1 90 to $2 20 per share an increase of over 18% above 2021 EPS and.
In developing these ranges we've used the current Brent price and foreign exchange rates projected out for the year.
Capital spending is estimated to be in the range of $225 million to $240 million anticipating the kickoff of a Kappa acetylene project. This year, we have approximately $90 million of U S. Air emission controls spending remaining with about $70 million of that being spent in 2022.
As far as compliance related capital expenditures are concerned 2022 represents an important inflection point for us as this spending will be dramatically reduced in 2023, allowing us to focus on completing previously announced projects and new initiatives.
In closing there are four key points I would like to reiterate.
First we are going to build off our excellent 2021 performance by continuing to realize improved pricing loading Ravenna, making improvements in our North America specialty business and leveraging new product gains.
Second we're excited to be laying the foundation to deliver higher earnings power.
As we approach the next five years, we expect to have the wind at our back from a discretionary cash flow perspective, with net leverage in line with targeted levels and our emission control investments coming to an end.
We have about 70% of the projected air emission control spending behind us at this time with only about $91 million to go and have a compelling growth opportunities ahead of us.
Third while we've highlighted the Ravenna expansion in Bombay in recent quarters as one of a handful of producers capable of using acetylene, we see significant growth opportunities for capa conductive carbons.
These materials are an important conductive additive and modern lithium ion batteries and other attractive markets going forward, we will share more about our plans to make this attractive near adjacency a more substantial contributor and growth driver.
Fourth we are anticipating a strong year in 2022 with EBITDA midpoint guidance results up over 16% and our adjusted EPS up over 18%.
And with that operator, please open the line for questions.
Thank you.
At this time will now be conducting a question and answer session. If you'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you let you move your question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions. Thank you.
Okay, we're gonna start out a little differently. This time, we're going to start out with a question from an investor We got an E mail and overnight and they were willing to let us share with the whole call and the question was could you tell me more about your capital spending plans and returns and so this is an excellent.
Question, that's one of the reasons why I wanted to take it and as I've said several times capital allocation. After safety. It is the most important question or issue for a CEO and for our board and this is a very frequent board topic here at Orion and.
Second point I'd make is from the day I joined this industry I have hammered that we need to stop thinking about margins stopped thinking about incremental improvement and think about return on invested capital.
That's how the world works and that is a big opportunity for this industry. So let's go through our numbers.
We have about $70 million for air emissions work this year and let me be clear I am determined to get a return on that investment last year early in the pricing cycle for 2022, I met with the U S sales team I had a slide up there just had one number on our capital investment.
And I made the point look we are going to get a return on that and you will see that in our EBITDA per ton for rubber this coming year.
Next up we have about $65 million to $70 million, we would say in our run rate for sustaining capital you should expect us at this point to be at the upper end of that range.
Given the high loading or the improved loading we see in our assets and in effect you see an incremental return on that with that added capacity and utilization of plants.
Next innovation in let's say improvements spending and what I mean by this is labs equipment.
Gail up from labs to industrial production some of digitalization. These sort of investments are very high return. They are very important to the company, albeit they're not an overnight return typically.
Next we have what I'd like to stress that Huawei is on budget. It is ahead of schedule. We're looking to bring on 60% to $70 65 to 70 Kt of capacity about $400 per ton of EBITDA would that that'll be a good return project for Orion.
We also have about 18 to 80 of let's say brownfield expansions slash Debottlenecking. This will mainly serve in the rubber industry. We have a sense of urgency about this opportunity. We think we can get this done this year and bring it on stream before the end of the year. This too will be an attractive project for us.
And finally, we have the captive conductive where we keep doing a greenfield facility based on our settling technology.
I share this now and we put it in our capital guidance, because we're confident we'll be moving forward on this this year and it's in our capital planning. So we want to be transparent about it but to be clear, we're not really ready to formally announce this project at this time I believe it will be very attractive returns for this company that will achieve there.
All of this capital I've, just talked about will keep us within our leverage range of two to two 5%.
Now before anyone asked a follow up I feel that we provide a lot of disclosure, but we are not going to be breaking out the capital between those four categories. As one of just a handful of companies who has the technology to convert gaseous are settling into a conductive powder and as one.
The very very few who can do that in a way that is qualified for lithium ion batteries, we see that as just a very strong technology advantage and we're treating this in a similar way we handle our gas black technology and that we're just just holding that as a very close to the vest and I feel that is most valuable to.
To our shareholders that we do that.
Okay. So that's our first question is nice to be able to start off with a question from an investor.
Operator, who's Who's next in our queue.
The next question is from the line of Josh Spector with UBS.
Yeah, Hey, Thanks for taking my question and thanks for those details on the Capex side is certainly helpful.
I guess, maybe bringing it back near term just looking at your 2022 guidance curious if you can give us some context of what you're baking in in terms of contract negotiation benefits from western tire companies, what the price spread benefit you're baking in from that.
Just in regards to your four Q.
Results in the turnaround in Ivanhoe startup you mentioned you have two more emission startups to go.
Is there any lower costs year over year in 'twenty, two or do we think about cost impact similar to what we saw in <unk> as those additional facilities start over the next year and a half.
Right. Okay. So two questions there number one about let's say what should we expect from other air emissions and the first one on the pricing cycle. So the pricing cycle as I indicated before very positive you'll see in our global EBITDA per ton lets say low three hundreds range.
Where that profitability is going to come in.
Do not provide greater clarity like by region, what we achieve because it's just commercially sensitive and different customers of sudden different outcomes and so forth.
If we then go to EPA and looking forward I think the big issue is and it's not just the cost in the fourth quarter that was an impact for us. It was just the amount of downtime and the challenge of bringing that unit online right. We were the first ones to commission this kind of technology in the carbon black industry than it was.
<unk> looking forward to our next project, we're going to be using a much more traditional dry scrubber technology for the soul <unk> abatement and I think it's just going to be a much easier and more straightforward startup for us in that regard I would also say that we've contracted out really EPC.
So engineer procure construct but also commissioning in the scope for the remaining two projects and that certainly de risked them as well. So I think it will be a simpler startup a quicker startup, but also a less costly startup.
Okay.
Okay. Thanks for that and I guess, just on rubber black volumes I mean, the big kind of stubborn for you guys through the year down about 10% versus 2019 and kind of consistent at that level through the year I know <unk> I mean, you mentioned some discrete items, but just wondering is that reflecting a price over volume strategy.
We should expect to persist over the next year and I know you just mentioned some brownfield expansions talked about market growth. How do you think volumes really develop in the rubber black side of the business over the next year.
So I think the market is tightening and I made the comments earlier about just the view of let's say independent data, reflecting higher industry loading and we will see that as well we will have higher loading next year.
Specific to the fourth quarter.
Demand was very strong in the fourth quarter and we just were not able to participate in that upside and in truth for this quarter right now we're in a position of rebuilding our safety stocks. There's a lot of requests for spot volumes right now, which we turned down our commitment is to our contract customers and.
That commitment means in addition to simply supplying them also rebuilding what we consider our safety stock levels. So that we can be assured of being reliable to them rather than trying to capture every spot opportunity. That's out there. So I think the market's robust we're going to have higher loading this year and also higher pricing and that's of course the.
Direction, you want to go.
Okay. Thank you.
Our next question comes from the line of Mike <unk> with Barclays. Please proceed with your question.
Great. Thanks, Good morning, guys.
Accordingly, while we return to your earnings your.
Your answer good morning, your answer to the Investor question I, just want to make sure I got it so for Capex. This year I think broad buckets 70 ish million for maintenance 70 ish million for EPA, which would leave 85 to 100 million for kind of growth projects is that correct.
Correct.
Including the innovation in that growth, but yes.
Okay and then.
And then just second one on Capex I might have missed it but is the cumulative EPA costs still in that $2 70 to $2 90 range or has that moved higher.
I think at this point, we're in we're at the upper end of that range just based on all the startup issues and challenges there and but yes basically.
Okay, and then lastly, just as we think about 'twenty two earnings you've mentioned there is a bunch of moving parts in terms of the macro supply chain you are rebuilding some inventory this quarter just how should we think about the cadence of earnings.
'twenty two.
We think theyre going to be relatively stable through the course of the year. I mean, there is still going to be Q4 Christmas is still going to come you're still going to have those kind of impact, but as we look at it we expect pretty good loading all the way through.
We obviously be in a position as I said earlier to take care of more spot sort of icing, but at the same time. We also have higher just baseload contracted volumes for this year, so there's a little bit less availability on our part for spot anyway.
Great. Thank you.
The next question is from the line of Chris catastrophe with loop capital markets. Please proceed with your question.
Yeah, Hey, good morning, So following up on the discussion around contract negotiations and I totally appreciate the sensitivity and keeping those comments purposefully vague, but just curious if you could provide a little bit more color maybe quality qualitatively characterize those discussions because you mentioned you.
Do expect higher loadings. This year. So I'm wondering if that's a function of just the stronger market or it was.
It or I can pick up some share in those contract negotiations.
And then just you know the nature of the negotiation with customers how much pushback have you gotten from price increase initiatives does this you know your focus on.
Dean entitled Understandably to a return on capital does that resonate with these with these buyers and with these customers and and and how often did security of supply come up in these discussions.
Great. Okay. So.
I would say first of all they make my comments around South America, North America, and Europe , because that's really where most of that action was some for Africa as well for US I would say in general there was a concern from tire companies. There is greater interest in just simply.
Securing their supply and I think that makes sense. When you think about all the challenges in the supply chain right now reliability getting the supply that was a very key so we did not really have to back off our goals on getting to what I consider to be fair pricing.
We had a marketplace I just think was conductive to that and we look to make great improvements.
Really in just about all of those market situations. It's been widely reported that there is going to be some capacity in the industry that may not do the upgrade for the EPA work.
That's for somebody else to confirm but that's that's out there and I think that just reflects that.
A natural and logical consequences.
When pricing doesn't support investment for a long period of time and I think reality like that biting is obviously another thing that moves. This forward. So we remain.
<unk> to getting a fair price to improving our returns to getting a return on all of that invest in capital for all of this EPA work I think that's essential for the health of this industry and good for the entire supply chain.
And I would say this year it was a little bit more like pushing on an open door.
Thanks for that extra color and then.
Just to follow up on I know you don't want to provide much specificity around the investment for the acetylene black but.
Just wondering.
Since you have in terms of you're addressing that market to underwrite a capital investment do you are you.
And it's obviously a dynamic space in the market is growing I don't know Albemarle. The biggest lithium company you talked about this.
Demand for lithium.
They raised their forecast substantially through 2025, so the CAGR for the industry is call it 30% give or take.
As far as the eye can see so youre building a plant.
That's going to feed into a market that's growing so I'm just wondering do you.
Do you anticipate a certain market share for your for your role in supplying conductive carbons you have specifications for a certain mix of customers at this point, what's underwriting that investment and then how do you.
About it in terms of the fact that you're going to be participating in a market that has that growth trajectory. Thanks.
Excellent question Tycho, Chris So first of all it is a dynamic in a growing market, but its a market also just really in shortage I would say around conductive carbons right now we could sell the entire capacity of our plant multi.
Multiple times over there is a number of different conductive carbons that go into.
Lithium ion batteries and the reality is as we see it the batteries perform better with a mix of different types of carbons that go in there. So we're really focused on one type of ultra high purity conductive cap of acetylene based product our view.
As we could grow capacity 510 times from where we are now and we would be able to sell that out over a course of years. Yes. Every new plant you would have to go through a qualification process, but as we are qualified with our current facility. We're highly confident of that I think one of the advantages of our space within.
<unk> conducted is that while for some other materials like carbon nanotubes technology for it is actually fairly broad and Theres a number of people who play in that space for this kind of material. The additive we're making for those electrodes to some degree there is a natural limit it's a the ability to.
Have the technology to do the conversion, but number two you need access to large quantities of acetylene and I think thats something that helps make this an attractive market.
Even with all the excitement around it today, so we see that as a big opportunity for where we are we're qualified we are.
We are just absolutely limitation by capacity at this point.
And just as a follow up to that are you at a point, where you would take a stab at sort of identifying the about that.
Whether it's the acetylene portion of that market or something broader and where you think you are at this point in terms of.
You know gaining market share based on the customer engagement that you have.
Right. So I think for our perspective, when we're able to announce and with that we're going to be able to announce the amount of acetylene like the scale of what these projects are and I think thats a different way of thinking about it versus share because again in the battery composition, you've got different forms of conductive.
<unk> I think this is a highly desirable form of conductive carbon for it and really our limitation I think is less around a what's that mean in terms of your relative share. It's really a performance sale around this and I think the limitation is going to be access to acetylene and the ability to.
Just manufacture the material.
Yeah.
Thank you very much.
As a reminder, you May press star one to ask a question.
The next question is from the line of John Turner with CJS Securities. Please proceed with your question.
Hey, good morning, everyone. Thank you for taking my question.
My first one is.
Is there any installation risking your capex at all as you're looking at today I know you mentioned that theyre more turnkey projects on a more proven technology. What what's open ended at this point and kind of how are you accounting for that.
Excellent question so the.
Tapper projects that would be greenfield right. So those are not.
Kicked off at this point, so definitely right. There is some inflation work into the risk until you nail that down I would say, it's very limited at this point for the project and why Bay as we're in the field and most of the major equipment has been purchased obviously inflation has been a challenge, but what we've been able to manage that and keep that on budget.
Thus far with the two remaining EPA projects, because we've got lump sum turnkey EPC contracts it significantly de risks I wouldn't say, it's zero, especially when you go out to the second project.
So not zero, but de risked pretty considerably and then finally on those debottlenecking projects. So.
Things that were moving very fast in this come together on so I think our cost estimates for that are already reflect today's inflation.
Okay, great. Thank you and I was just wondering if you could just.
Ill add a little more color just to the energy risk in Europe , I know that you have a relationship to crude oil.
A little bit inverse of what most people have it I'm just wondering if you can quantify you know what happened.
Energy prices.
Due to maybe conflicts or some other issues.
Clearly out of control, but what is your exposure to that specifically.
Right. So let me.
Let me talk to that in maybe three levels. So number one you just mentioned the conflict and I think that's kind of an elephant in the room for the world today and for the investment space and just to say, we all recognize.
Something bad happens and the Ukraine like the impact to us.
<unk> insignificance to the human side of that.
Specifically for Europe .
There's a lot of products a lot of carbon black imported from Russia today.
I think in that kind of a scenario like all bets are off and I think it would be a very challenging and dynamic cycle to be clear.
With the available capacity, we have we would support people who are interested in making a strategic realignment with what their supply chain is zero interest and bailing people out on a short term basis for.
Supply chain Choi.
<unk> that they've made.
In terms of natural gas and oil prices, that's all in our guidance right and it's all there.
Baked in as I said basically projecting out current rates for oil.
Moves with our contracts as we've described in the past so a $10 a barrel increase in the oil price over the course of the year is about 7% to 10.
$1 million of additional EBITDA for us I'd say over the course of the year because depending on how fast that moves may take a while to catch up that kind of things around it but by and large you're right. That's an unusual situation that is a positive for us.
We also have natural gas that we buying some of our natural gas.
Is pass through in contracts some of it isn't it's obviously a commercial priority for us to even strengthen the position that we have in that space, but where we don't obviously, that's just another area, where you have to go out and push pricing on it.
Does that help.
It does coding. Thanks, that's really helpful. If I could squeeze one more in there I was wondering if you could touch on the hire of Jeff glass from Graham and kind of what made up that candidate and what youre asking but.
As the day, one year one priority.
As it gets ramped up.
Well so.
I think he is an excellent choice for us. So it comes in with public company CFO experience I would say beyond that just very broad experience. He also has an undergraduate degree in chemistry, a master's in chemical engineering. So I think you'll understand our work and what we're doing here very well and I think understand that technology is is a re.
All positive for us.
He is a bit of a known quantity for me personally I worked with him probably about 25 years ago, but it was somewhat kept in touch with a little bit and I think it will be excellent fit for Orion. We're a very global company. He's had expatriate experienced in Latin America.
That's a big plus for Us I, just think we're very very fortunate.
To be able to have Bob as our CIO and Jeff coming on as our CFO and I think thats going to make a really strong team.
If I go back to that very first question I think key things for US is Orion is thinking about our capital allocation and that's.
Clearly an important part of this role for our financial team as well.
Okay Alright.
Alright.
Okay.
Thank you.
The next question is from the line of Laurence Alexander with Jefferies. Please proceed with your questions.
Hi, Good morning, This is Maria for Laurence Alexander.
I just have two quick questions first one.
Could you provide any updated view on how much new capacity will add to do EBITDA over the next two three years.
Well, so what we've given in the past, we sort of guidance around what the EBITDA per ton is so we've indicated for example that we thought that the Ravenna capacity, which we've.
Commissioned at the end of last year would be around let's say $4 5500, and that we thought that the capacity in.
<unk> Bay would be about 400.
The remaining let's say that the bottlenecking, it's more in the rubber area. So I'd use that as the guidance and in terms of a kappa acetylene based technology, we really have to wait till we make an announcement there including what the final volumes are.
And then in terms of the contribution to EBITDA.
Well those are EBITDA margins I just gave you yes.
Yes, Sir.
I guess my.
Second question is if you can provide any more color on what youre seeing in China right now any trends, we should mean yeah.
Yeah excellent question on China.
So I think the big question for many people is zero Covid policy and will that change and different people can speculate on where that'll go I don't I don't see a lot of value in adding to that.
Right now I think one of the strongest markets in China is actually the automotive sector. This week I had lunch with another executives from another chemical company and who play in similar but different markets in China and that was I think a uniform view around the table in terms of what's happening there.
We saw for example areas like fiber, which is a really a core market in terms of the world a lot of the capacity being in China that people have just been very cautious there I'd say based on the economy based on higher energy prices.
It's been an area for example.
Load, a little bit, but I think automotive surprise spot for them right now.
Okay. Thank you.
Our next question comes from the line of Dan Carroll with inherent group. Please proceed with your question.
Hey, guys. Thanks for all the detail on that on the Capex plans kind of two related questions to that.
One could you can you remind us.
How much capex is associated with that $30 million to $40 million.
Incremental EBITDA from the lobby and Ravenna plants.
And then second it sounded like there might have also been some some plans for increased Opex investment.
Product development and R&D I was wondering if you could kind of help that.
You kind of characterize the amount of.
Kind of increase that might be year over year kind of going into that.
Into the earnings guidance.
Sure. So let me just say in general capacity increases is I'd say for traditional furniture based technology. It's in the order of let's say $1 million per K T up to if youre in an area with.
More expensive labor very robust air emissions read that as the United States, maybe 161 $7 million.
The Huawei I'd guide you towards the lower end of that when you think about capital ranges.
For that plan in terms of let's say innovation improvements.
Adding some lab slabs as well as laboratory equipment, let me just say this the package of spending in that area is probably about twice what it was in the last year and last year was probably an increase as well.
So we just with all the commitments we've made in terms of sustainability, driving our business, which means for us productive and it means sustainable carbon black. There's obviously, an innovation investment that needs to go along with that and we're making that.
Great. Thank you.
Okay. Next question. Please thank you Pam.
Our next question comes from line of Josh Spector with UBS Okay.
Yeah, Hey, Thanks for taking my follow up just wanted to ask a quick one on specialty I mean, you noted that there were just weaker demand in fourth quarter. I was curious is that mostly auto OEM and that recovery is on auto OEM recovers or did you see any weakness in any other markets that we should be paying attention to what was that demand or inventory related in your view.
Okay.
But nothing I think we have to be particularly concerned about when I mentioned before about let's say high end carbon black for the fiber market like that's an example of a specific part of the specialty market that was a was a little bit weaker in the fourth quarter I don't think.
That's like a long term trend that people aren't kind of biologic where in that kind of thing I think it was just reflecting let's say a cautiousness with the oil prices in that.
There's other areas, where theres been a little bit of weakening I'd say.
Our contextual paints right a little bit weaker on the other hand, I expect automotive to improve as the situation improves over the course of the year. So.
The what else what I'd say I'd say some of the infrastructure spur.
<unk> spending so let's say black.
Black pipe, which is at the lower end of the specialty range.
That was a little bit weaker than we will have to see for example, how things play out geopolitically right now, which I think could affect that.
For us going forward a little bit.
One of the challenges for us in the fourth quarter. It was just simply getting the product out.
That's a deferral really of volume from point to point, but when we said the supply chain challenges also it was our own supply chain challenges in that we had a very extensive outage in our flagship facility in Cal Sharon in Cologne area of Germany.
But that's behind us plants back up now so does that help you a bit.
Yeah, No that's helpful. Thanks, guys.
Thank you as a reminder, you May press star one to ask a question.
Okay.
Thank you at this time, we've reached the end of our question and answer session I will hand, the floor over to you.
Closing remarks.
Well first of all thank you all for joining US today. We appreciate all your insightful questions, we're going to be holding our first investor day. Later this year, it's going to be a hybrid scenario. So youll be able to participate however, you feel comfortable and however, you want to do that and we're looking forward to being able to confirm those dates with you a little.
Later in this year until then and until our next quarter I Hope you all have a good rest of your day. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.