New Price Hike for Hydrogen Peroxide

24 July 2000 00:00  [Source: ICB Americas]

By Lisa Jarvis

Hydrogen peroxide producers have nominated their second price increase of the year. As demand from the pulp industry surges, peroxide manufacturers are attempting to strengthen margins and bring the value of their product to a level that can sustain further investment.

FMC Corporation led the increase, raising its US prices by 4 cents per pound (on a 100 percent basis) and its Canadian prices by C$130 per metric ton. Solvay Interox Inc. followed by raising its US prices by 4 cents per pound. Last week, Degussa-Hüls Corporation and Eka Chemicals also joined the ranks, upping their US prices by 4 cents per pound and $80 per ton, respectively, and their Canadian prices by C$125 and C$130 per metric ton, respectively.

Several factors are driving the increases. An immediate issue is the need to offset soaring natural gas and fuel costs. Since the beginning of the year, natural gas prices have doubled, pushing the price of hydrogen, steam and electricity skyward and squeezing margins.

In addition, the strong recovery of the pulp and paper industry has hydrogen peroxide producers scrambling to meet demand. Plants have been running at close to full capacity, and the bleaching season is further tightening supplies.

In North America, sales in the first quarter of 2000 are expected to exceed those during the same period of 1999 by 7 to 8 percent, and the market shows no sign of faltering in the second quarter, according to Harriman Chemsult Ltd. Industry sources rate first quarter sales growth as high as 12 to 13 percent on a year-over-year basis.

"The industry is operating essentially at full capacity. Therefore, output from the current production units will need to be maximized to ensure that demand for hydrogen peroxide can be effectively met in the months ahead," says Don Magid, marketing director at Solvay Interox.

"Due to the strong up-cycle in the pulp industry, our customers' peroxide demand has increased at a rapid rate, causing us to push production rates higher and invest in new distribution assets," adds Thomas Ball, marketing director for the hydrogen peroxide division at FMC.

Although demand is healthy, producers remain plagued by weak pricing. The nomination is the second price increase this year and is part of a continuing effort by producers to rebuild margins. "Current prices are not commensurate with the value in use of the products in various applications, and our returns on installed capital remain disappointing," Mr. Ball says.

Producers want to bring prices to a level that allows them to debottleneck their plants and invest in new capacity. "While there is sufficient capacity installed to cover increases in demand over the coming years, this capacity is currently reportedly unavailable," says Dr. Ernst Barenschee, director of marketing for peroxygen chemicals at Degussa-Hüls. "We expect some debottlenecking will take place, provided the market price of hydrogen peroxide supports such investments."

The market fell into a rough cycle when producers installed too much capacity in anticipation of a favorable ruling from the Environmental Protection Agency with regard to the use of chlorine by pulp and paper mills.

The hydrogen peroxide industry expected EPA to mandate a conversion to total chlorine-free (TCF) bleaching, which uses four times as much hydrogen peroxide as elemental chlorine-free (ECF) bleaching. When EPA ruled in favor of ECF bleaching, the hydrogen peroxide industry was saddled with overcapacity and prices weakened.

As a result, several plants idled capacity and the market gradually turned around. FMC mothballed 30 million pounds of capacity at its Spring Hill, W.Va., site in 1997, and took another 100 million pounds off line at its Bayport, Tex., plant in 1998. Solvay also idled 110 million pounds of capacity at its Deer Park, Tex., facility in 1998.

Nearly 65 percent of all hydrogen peroxide goes into the pulp and paper market. The chemical industry and textiles represent peroxide's two other main markets. Although there has been a recent surge in pulp and paper demand for peroxide, growth in that application is expected to slow significantly in the long term.

The US pulp and paper industry's annual consumption of hydrogen peroxide climbed from 115,000 tons in 1991 to 220,000 tons in 1999, according to the American Forest and Paper Association's 2000 survey. The industry projects a 6.8 percent increase in consumption in 2000, bringing demand to 235,000 tons.

Once the conversion to ECF bleaching is completed, growth will slow dramatically. Growth in 2001 will be only an incremental 2.1 percent, after which consumption by the pulp industry is expected to level off at 240,000 tons.

In addition to the projected slowdown in pulp and paper growth, hydrogen peroxide demand from textiles has shrunk as textile manufacturers move offshore. As peroxide's main markets mature, producers are striving to develop new applications.

Many producers are delving into emerging specialty applications for peroxide. Producers are developing value-added products, particularly high-purity, high-grade peroxide for the electronics industry, a segment posting the industry's highest growth rates.

Several peroxide producers have already dedicated plants for manufacturing ultra-high-purity material. Solvay Interox has plants in both Texas and Germany, and FMC recently added a high-purity, high-strength unit to its Bayport, Tex., facility.

The strength of the semiconductor industry, combined with surging demand for bulk, delivered, high-purity chemicals, is boosting growth. "The feedback we are getting from the marketplace confirms the current robust growth rates for semiconductors. We expect that 2000, 2001 and 2002 will be good years for the industry," notes Brad Bell, business manager for semiconductor grades at Solvay Interox.

Yet even with such healthy growth rates, sales to the electronics market are not expected to have a major impact on overall market growth.

The environmental market, which includes air and water treatment, may have a greater impact on sales volumes. "Overall, there are no new applications or markets that are likely to significantly alter the slower growth in the near term," says FMC's Mr. Ball.

HYDROGEN PEROXIDE--Effective August 1 or as contracts permit, Degussa-Hüls Corporation is increasing its off-list hydrogen peroxide prices. Prices for all product grades will go up by 4c. per pound (100 percent basis) in the US and C$125 per metric ton (100 percent basis) in Canada.

Eka Chemicals is raising its prices for hydrogen peroxide by $80 per ton (100 percent basis) in the US and C$130 per metric ton in Canada. The increase is effective immediately or as contracts permit.

MARTIN MARIETTA Materials, Inc. (MMM) has entered into a long-term agreement with Chemical Lime Company to process aggregates materials and supply operating services at its New Braunfels, Tex., site. MMM will build an aggregates plant with an annual capacity of 1.5 to 2 million tons in order to process currently unusable limestone.

MINERALS Technologies Inc. had net income of $17.2 million during the second quarter, a 9 percent increase over the company's net income in the prior year. MT's global sales totaled $165.2 million, up 4 percent from $158.8 million in the same quarter of 1999. Operating income for the quarter also rose 9 percent from $24.3 million in 1999 to $26.5 million.

The company's sales of specialty minerals, including precipitated calcium carbonate (PCC) and processed minerals, totaled $118.3 million for the quarter, a 2 percent increase from sales of $116.3 million in the prior year's period. Global sales of PCC also grew 2 percent to $97.5 million.

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