J.P. Morgan cuts Orion to “underweight” on weak carbon black market

J.P. Morgan downgraded Orion S.A. to "underweight" and reiterated its "underweight" rating on Cabot, citing a significantly deteriorating global carbon black market. The brokerage anticipates global capacity utilization, currently in the low 70% range, to decline further as capacity growth, projected at over 3% in 2025, substantially outpaces demand growth of just over 1%. This oversupply, compounded by a 10% year-over-year drop in U.S. tire production and elevated imports, has eliminated pricing power, with both companies failing to secure 2025 contract price increases and not expected to achieve them in 2026, signaling potential underperformance for their shares.

Analysis

J.P. Morgan has downgraded Orion S.A. (OEC) to “underweight” and reiterated its “underweight” rating on Cabot Corp. (CBT), signaling a significant deterioration in the global carbon black market. The core issue is a structural supply-demand imbalance, with J.P. Morgan forecasting capacity to grow over 3% in 2025 while demand increases by only slightly more than 1%. This is expected to depress global capacity utilization, which already sits in the low 70% range. Weakness is compounded by negative trends in the U.S. tire industry, a key end-market, where domestic production fell 10% year-over-year in the first five months of 2025. Concurrently, tire imports have surged 5.3% year-to-date, capturing over 60% of industry sell-through and pressuring domestic volumes. This environment has eroded pricing power, evidenced by both Orion and Cabot failing to secure contract price increases for 2025, with a similar outcome anticipated for 2026. J.P. Morgan's expectation of flat or declining domestic carbon black prices and a reduced price target for Orion to $9 underscores the challenging outlook for producer profitability and share performance.

Key Decisions for Investors

• Investors should view the dual 'underweight' ratings on Orion and Cabot as a strong negative signal, reflecting a fundamental deterioration in the carbon black market due to structural oversupply and weak end-market demand.
• Consider reducing exposure or avoiding new positions in OEC and CBT, as the combination of falling U.S. tire production, rising imports, and failed price hikes suggests significant headwinds for earnings and share price performance through 2026.
• For any potential change in thesis, closely monitor key forward-looking indicators such as global capacity utilization rates, U.S. tire import data, and any signs of pricing power returning in future contract negotiations.