Orion SA (OEC) 2021 Q4 法說會逐字稿

Greetings. Welcome to Orion Engineered Carbons Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) 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 18. 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. Good morning, everyone, and welcome to our earnings conference call. In 2021, 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 with Specialty representing about 55% of it.

As expected, fourth quarter results were weaker versus last year, reflecting the Ivanhoe start-up 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 20.8% 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 Ivanhoe site. We 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 2 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 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, 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 Huaibei, our first greenfield plant as Orion. Scheduled to ramp in 2023 and 2024, it will produce 65 to 70 kilotons per year of specialty and high performance carbon black.

This greenfield plant as well as our Ravenna expansion are 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-enhancing 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 kappa 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. Our kappa 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 in our conductives business, with approximately $15 million to $20 million of EBITDA generated from our conductives business in 2021 and growing to the mid-20s in 2022. We look forward to sharing progress in this area later this year.

Turning to Slide 4. 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.

Currently, 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 BlackCycle project where we are working to enable the development of a 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 team 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 5, adjusted EBITDA declined to $52.3 million year-over-year, primarily reflecting our now completed Ivanhoe start-up as well as other major turnarounds in the quarter and supply chain challenges we experienced shipping our high margin specialty products from EMEA 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 Ravenna start-up as well as fewer turnarounds in the coming year. We're also entering a period of demand that is outstripping global supply growth, and that's 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, impact of unfavorable product mix and foreign currency translation. Contribution margin decreased 9.9% year-over-year, mainly due to higher energy and shipping costs, lower volume, unfavorable product mix and foreign currency translation. Adjusted EBITDA decreased 20.8% 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.

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 2 calls that 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 7, you will find several useful bridges that provide greater financial details supporting the comments I just shared on our quarterly results.

On Slide 8, you can see that we are providing an additional guidance metrics 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 2021, building upon the positive trend we experienced last year and the confidence we have in our future financial performance.

Slide 9 details our year-to-date cash generation, which is essentially flat with the favorable impact of strong financial performance and receipt of the Evonik settlement proceeds, largely offset by the net working capital increase of $98 million and EPA-related investments. Most of the increase in net working capital was attributed to higher oil prices. As a reminder, when oil prices rise, our 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 2.7x, slightly above our targeted steady state net leverage range of 2x to 2.5x. We expect that to improve in fall into our target range in 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 earnings capacity. We also anticipate higher discretionary cash flow beginning in 2023 as EPA investments ramp down, while our Ravenna production ramps up this year and our Huaibei expansion ramps up in 2023 and 2024.

Moving to Slide 10, Specialty volumes declined 8.6% 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, partially 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 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 5.3% year-over-year, primarily reflecting our turnaround in Ivanhoe and other locations as well as a now settled strike that impacted a key Korean tire 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 Corning.

Back in early 2020, we set the goal to take action during the pandemic so that we would emerge stronger from it. Well, 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 the things that we've done, the outcome of the pricing cycle and the general supply/demand imbalance in our markets. For example, global utilization rates are projected to be roughly 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. 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 kick-off of a kappa acetylene project this year. We have approximately $90 million of U.S. air emission control 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 4 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 5 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 and Huaibei in recent quarters, as one of a handful of producers capable of using acetylene, we see significant growth opportunities for kappa-conductive carbons. These materials are an important conductive additive in modern lithium-ion batteries in 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're anticipating a strong year in 2022 with EBITDA midpoint guidance results up over 16% and our adjusted EBITDA up over 18%.

And with that, operator, please open the line for questions.

(Operator Instructions) Thank you.

We're going to start out a little differently this time. We're going to start out with a question from an investor. We got our email in overnight and they were willing to let us share it 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 a 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, stop 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, it just had one number on it, 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'd say, in our run rate for sustaining capital. You should expect us at this point to be at the upper end of that range, just 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, added utilization of plants.

Next, innovation and, let's say, improvement spending. And what I mean by this is labs, equipment, the scale-up from labs to industrial production, some of digitalization. These sort of investments are very high return. They're very important to the company, albeit they're not an overnight return typically.

Next, we have Huaibei. I'd like to stress that Huaibei 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 with that, that will be a good return project for Orion. We also have about 18 kt of, let's say, brownfield expansions/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 conductives where we've been doing a greenfield facility based on our acetylene technology.

I share this now and we've 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 we'll achieve there. All of this capital I've just talked about will keep us within our leverage range of 2% to 2.5%.

Now before anyone asks 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 4 categories. As one of just a handful of companies who has the technology to convert gaseous acetylene into a conductive powder, and as one of 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 holding that as very close to the vest, and I feel that is most valuable to our shareholders that we do that.

So that's our first question. And it's nice to be able to start off with a question from an investor. Operator, who's next in our queue?

The next question is from the line of Josh Spector with UBS.

Thanks for the details on the CapEx side, it's 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? Also, just in regards to your 4Q results and the turnaround and Ivanhoe start-up, you mentioned you have 2 more emission start-ups to go. Is there any lower cost year-over-year in '22 or do we think about cost impact similar to what we saw in 4Q as those additional facilities start over the next year and a half?

So 2 questions there. Number one, about, let's say, what should we expect from other air emissions and 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, let's say, low-300s range of where that profitability is going to come in. We do not provide greater clarity by region what we achieve because it's just commercially sensitive and different customers have slightly different outcomes and so forth.

If we then go to EPA and looking forward, I think the big issue is, 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 a technology in the carbon black industry and it was challenging. Looking forward to our next project, we're going to be using much more traditional, a dry scrubber technology for the SOx abatement. And I think it's just going to be a much easier and more straightforward start-up for us in that regard. I would also say that we've contracted out really EPCC. So engineer, procure, construct, but also commissioning in the scope for the remaining 2 projects, and that's certainly derisked as well. So I think it will be a simpler start-up, a quicker start-up, but also a less costly start-up.

And I guess just on rubber black volumes, I mean, is it 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 4Q, I mean, you mentioned some discrete items. But just wondering, is that reflecting a price over volume strategy that 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 a view of, let's say, independent data, reflecting higher industry loading, and we'll see that as well. We'll have higher loading next year. Specifically in 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 level 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 is 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.

Our next question comes from the line of Mike Leithead with Barclays.

Corning, I wanted to return to your answer to the investor question. I just want to make sure I've 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 million to $100 million for kind of growth projects. Is that correct?

Correct. I mean, I'm including the innovation in that growth, but yes.

And then just second one on CapEx, I might have missed it. But is the cumulative EPA costs still in that 270 to 290 range or has that moved higher?

I think at this point, we're at the upper end of that range just based on all the start-up issues and challenges there. But yes, basically.

And then lastly. Just as we think about '22 earnings, you've mentioned there's a bunch of moving parts in terms of the macro supply chain, you're rebuilding some inventory this quarter. Just how should we think about the cadence of earnings in '22?

We think they're going to be relatively stable through the course of the year. I mean, there's still going to be Q4. Christmas is still going to come. You're still going to have those kind of impacts. But as we look at it, we expect pretty good loading all the way through. We'll 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.

The next question is from the line of Chris Kapsch with Loop Capital Markets.

So following up on the discussion around contract negotiations, and I totally appreciate the sensitivity in keeping those comments purposely vague. But just curious, if you could provide a little bit more color maybe qualitatively characterizing 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 was Orion -- did Orion pick up some share in those contract negotiations? And then just the nature of the negotiation with customers, how much pushback have you gotten from price increase initiatives? Does this -- your focus on being entitled understandably to return on capital. Does that resonate with these buyers and with these customers? And how often did security of supply come up in these discussions?

So I would -- so first of all, let me 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 was 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 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 that I just think was conductive to that, and we look to make grade improvements really in just about all those market situations. It's been widely reported that there's 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 out there. And I think that just reflects the natural and logical consequences of 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 committed to getting a fair price to improving our returns to getting a return on all that invested capital for all 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 a follow-up on -- I know you don't want to provide much specificity around the investment for the acetylene black. But just wondering the confidence you have in terms of your addressing that market to underwrite a capital investment. Do you -- are you -- and it's obviously a dynamic space and the market's growing, I don't know, Almar, the biggest lithium company, you talked about the EV 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 you're building a plant that's going to feed into a market that's growing. So I'm just wondering, do you anticipate a certain market share for your role in supplying conductive carbons? Do you have specifications for a certain mix of customers at this point? What's underwriting that investment? And then how do you think about in terms of the fact that you're going to be participating in a market that has that growth trajectory?

Excellent question, Chris. So first of all, it is a dynamic and a growing market, but it's a market also that's just really in shortage, I would say, around conductive carbons right now. We could sell the entire capacity of our plant multiple times over. There's 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, kappa acetylene-based product.

Our view is we could grow capacity 5x, 10x from where we are now, and we would be able to sell that out over a course of years. Yes, every new plant, you'd 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 conductives is that while for some other materials like carbon nanotubes, the technology of Ford is actually fairly broad, and there's 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's a natural limit. It's, a, the ability to have the technology to do the conversion. But number 2, you need access to large quantities of acetylene. And I think that's something that helps make this an attractive market even with all the excitement around it today. So we see that as a big opportunity from where we are. We're qualified. We are just absolutely limitated 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 TAM, whether it's the acetylene portion of that market or something broader? And where you think you are at this point in terms of gaining market share based on the customer engagement that you have?

So I think from our perspective, when were 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 that's a different way of thinking about it versus share, because again, in the battery composition, you've got different forms of conductive carbons, I think this is a highly desirable form of conductive carbon for it. And really, our limitation I think is less around what's that mean in terms of your relative share. It's really a performance sale around us. I think the limitation is going to be access to acetylene and ability to just manufacture the material.

(Operator Instructions) The next question is from the line of Jon Tanwanteng with CJS Securities.

My first one is, is there any inflation risk in your CapEx at all as you're looking at today? I know you mentioned that there are more turnkey projects on more proven technology. What's open ended at this point? And kind of how are you accounting for that?

Excellent question. So the kappa projects that would be greenfield, so those are not kicked off at this point. So definitely, there's some inflation work into -- risk until you nail that down. I'd say it's very limited at this point for the project in Huaibei as we're in the field and most of the major equipment has been purchased. Obviously, inflation has been a challenge, but we've been able to manage that and keep that on budget thus far.

With the 2 remaining EPA projects, because we've got lump sum turnkey EPCC contracts, it's significantly derisked. I wouldn't say it's zero, especially when you go out to the second project. So not zero, but derisked pretty considerably. And then finally, on those debottlenecking projects, so that's things that we're moving very fast and has come together on. So I think our cost estimates for that already reflect today's inflation.

And I was just wondering if you could just help add a little more color just to the energy risk in Europe. I know that you have a relationship to crude oil that's a little bit inverse of what most people have. And I'm just wondering if you can quantify what happens if energy prices due to maybe conflicts or some other issues just go completely out of control? What is your exposure to that specifically?

So let me talk to that in maybe 3 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, so we all recognize. Like, if something bad happens in the Ukraine, like the impact to us pales in significance 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. I have zero interest in bailing people out on a short-term basis for a supply chain choices that they've made.

In terms of natural gas and oil prices, that's all in our guidance, and it's all there baked in, as I said, basically projecting out current rates. For oil, that 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 million to $10 million of additional EBITDA for us. I'd say, over the course of the year, because depending on how fast that moves, it 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's a positive for us.

We also have natural gas that we buy. Some of our natural gas is passed 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, Corning. 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 him the best candidate and what you're tasking with as the day one, year one priority as he gets ramped up?

So I think he's an excellent choice for us. So he comes in with public company CFO experience. I say beyond that, just very broad experience. He also has an undergraduate degree in chemistry, a masters in chemical engineering. So I think he will understand our work and what we're doing here very well. And I think understanding that technology is a real positive for us.

He's a bit of a known quantity for me personally. I worked with him probably about 25 years ago, but he was someone I kept in touch with a little bit. And I think he will be an excellent fit for Orion. We're a very global company. He's had expatriate experience in Latin America, and I think that's a big plus for us. I just think we're very, very fortunate to be able to have Bob as our CAO and Jeff coming in as our CFO, and I think that's going to make a really strong team.

If I go back to that very first question, I think key things for us as Orion is thinking about our capital allocation, and that's clearly an important part of this role for our financial team as well.

The next question is from the line of Laurence Alexander with Jefferies.

This is Maria, for Laurence Alexander. I just have 2 quick questions. First one, could you provide any updated view on how much the new capacity will add to EBITDA over the next 2, 3 years?

So what we've given in the past is 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, 450, 500 and that we thought that the capacity in Huaibei would be about 400. The remaining, let's say, that debottlenecking, it's more in the rubber area. So I'd use that as a guidance. And in terms of a kappa acetylene-based technology, we really have to wait until we make an announcement there, including what the final volumes are.

And in terms of the contribution to EBITDA?

Well, those are EBITDA margins I just gave you.

And I guess my quick second question is if you can provide any more color on what you're seeing in China right now? Any trends we should see in there?

Excellent question on China. So I think the big question for many people is the zero COVID policy and will that change and different people can speculate on where that will go. 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 executive 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 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 that that's been an area, for example, that slowed a little bit. But I think automotive is a bright spot for them right now.

Our next question comes from the line of Dan Carroll with Inherent Group.

Thanks for all the detail on the CapEx plans, kind of 2 related questions to that. One, can you remind us how much CapEx is associated with that $30 million to $40 million of incremental EBITDA from the Huaibei Ravenna plants? And then second, it sounded like there might have also been some plans for increased OpEx investment in product development and R&D. I was wondering if you could kind of help kind of characterize the amount of kind of increase that might be year-over-year kind of going into the earnings guidance?

So let me just say, in general, capacity increases is, I'd say, for traditional furnace-based technology. It's in the order of, let's say, $1 million per kt up to if you're in an area with more expensive labor, very robust air emissions, read that as the United States, maybe $1.6 million, $1.7 million. And then at Huaibei, I'd guide you towards the lower end of that when you think about capital ranges for that plant.

In terms of, let's say, innovation, improvements, adding some labs 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 just with all the commitments we've made in terms of sustainability driving our business, which means for us, conductives and it means sustainable carbon black. There's obviously an innovation investment that needs to go along with that, and we're making that.

The next question comes from the line of Josh Spector with UBS.

Just wanted to ask a quick one on Specialty. I mean, you noted that there was just weaker demand in fourth quarter. I was curious, is that mostly auto OEM and that recovers when auto OEM recovers or did you see any weakness in any other markets that we should be paying attention to or was that demand or inventory related in your view?

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 little bit weaker in the fourth quarter. I don't think that's like a long-term trend that people aren't going to buy athletic wear and 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 there's been a little bit of weakening, I'd say, architectural paints, a little bit weaker. On the other hand, I expect automotive to improve as the chip situation improves over the course of the year. So the -- what else would I say. I'd say some of the infrastructure spending, so let's say, black pipe, which is at the lower end of the specialty range. That was a little bit weaker, and we'll 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 was just simply getting the product out. That's a deferral really of volume from point to point. But when we said supply chain challenges also, it was our own supply chain challenges, in that we had a very extensive outage in our flagship facility in (inaudible) of the Cologne area of Germany. But that's behind us, plant is back up now. So does that help you a bit?

(Operator Instructions) At this time, we've reached the end of our question-and-answer session. Now I'll hand the floor over to Corning Painter for 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 you'll 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 bit 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.