Ingevity and Georgia-Pacific end CTO supply agreement
Ingevity Corporation and Georgia-Pacific have mutually agreed to terminate their crude tall oil (CTO) supply agreement. This decision marks the end of a longstanding partnership, reflecting both companies’ strategic shifts and operational realignments. Georgia-Pacific, one of the largest manufacturers of pulp and paper products, has been a significant supplier of CTO to Ingevity for several years.
Crude tall oil is a versatile and renewable raw material derived from the wood pulping process, specifically from the Kraft process. CTO contains a mixture of fatty acids, rosin acids, and other components, making it suitable for various industrial applications, including the formulation of metalworking fluids. It has been a critical raw material for Ingevity’s production of high-value performance chemicals used in a variety of applications, including adhesives, inks, coatings, and rubber.
The termination of this agreement signals a shift in how both companies approach their supply chain and resource management. Ingevity has indicated plans to diversify its raw material sources and invest in new technologies to enhance its product offerings. Georgia-Pacific, on the other hand, is expected to reallocate its CTO output to other strategic initiatives within its operations.
Ingevity’s management is considering more major changes in 2024 to restructure its Performance Chemicals business to target more profitable specialty chemicals markets. Ending the CTO supply agreement gives Ingevity more flexibility to make these changes.
Ingevity previously entered into a CTO supply agreement with Georgia-Pacific in March 2018, which was amended in May 2020. A second amendment to the CTO supply agreement in March 2023 obligated Ingevity to purchase and receive crude tall oil produced by certain Georgia-Pacific facilities.
As consideration for the termination of the agreement, Ingevity made a USD50 million cash payment to Georgia-Pacific on July 1, 2024. An additional cash payment of USD50 million will be made to Georgia-Pacific by October 15, 2024. In addition, Ingevity agreed to buy more crude tall oil from Georgia-Pacific in July 2024 if the amount they bought in June 2024 did not reach certain specified levels.
The termination agreement, effective immediately, includes a release of both parties from any future obligations under the original CTO supply agreement. This move allows each company to explore new opportunities and partnerships better aligned with their evolving business strategies and market conditions.
