Hydrogen Peroxide Pricing Firms As Values and Production Costs Rise

16 October 2000 00:00  [Source: ICB Americas]

By Arthur Capone

Despite two successful price increases this year, hydrogen peroxide producers warn that further price hikes may be necessary to offset high natural gas costs and lift peroxide's pricing to its value in the marketplace. Although manufacturers are striving to strengthen margins, they expect peroxide's growth to slow next year, further delaying investments in new capacity.

In mid-September, AtoFina became the latest producer to raise its prices, by $88 per metric ton. Last July, FMC Corporation led the industry's second price hike: 4 cents per pound on a 100 percent basis. Solvay Interox Inc., Degussa-Hüls Corporation and Eka Chemicals all matched FMC's increase.

The increases are being driven by several issues, the largest being soaring natural gas costs. Natural gas prices have more than doubled this year, and the prices of hydrogen and electricity have also skyrocketed.

High fuel prices have raised freight costs for delivering hydrogen peroxide. In addition, increasing demand has forced the industry to invest in new railcars, trailers and trucks.

Overall demand has climbed 10 percent this year, expanding consumption by 260 million pounds during the past two years, according to a spokesman from FMC's hydrogen peroxide division.

The industry is still running at close to full capacity to meet surging demand from the revived pulp and paper industry. Operating rates are expected to hover at 95 to 98 percent until next year's second quarter.

"We're operating at close to 100 percent, so we can ensure that the demand for peroxide will be met," says Don Magid, marketing director at Solvay Interox.

Yet weak margins continue to afflict producers. "Considering all the problems the industry faces, and assuming that demand from our main markets remains strong, we would expect that there will be further price increase announcements in the coming months," says Ernst Robert Barenschee, marketing director for peroxygen chemicals at Degussa-Hüls.

Mr. Barenschee adds that because of the expected slowdown in market growth after the pulp industry completes its implementation of Environmental Protection Agency's cluster rules, demand will take several years to reach a level requiring new capacity.

During the last five years, the hydrogen peroxide market has shifted considerably. Around 1995, when EPA was expected to favor total chlorine-free bleaching (TCF), which uses hydrogen peroxide and ozone to replace chlorine, producers built massive capacity to meet the expected increase in demand.

But the adoption of TCF bleaching would have imposed an enormous cost on pulp mills, so EPA endorsed elemental chlorine-free bleaching (ECF), which allows mills to use chlorine dioxide, a chemical derived from sodium chlorate, to replace chlorine in the bleaching process. TCF bleaching consumes more than four times as much hydrogen peroxide as ECF bleaching, according to SRI International, a consultancy based in Menlo Park, Calif.

EPA's decision forced many peroxide plants to idle capacity. FMC mothballed 30 million pounds at its Spring Hill, W. Va., plant in 1997 and took 100 million pounds down at its Bayport, Tex., plant the following year. Solvay also idled 110 million pounds of capacity at its Deer Park, Tex., plant in 1998.

Once the conversion to ECF bleaching is completed next April, the peroxide market's growth rate will decrease. Most mills have already converted to ECF, and the rest will adopt it by early next year. Although pulp prices are expected to soften, the pulp industry's consumption of peroxide should stay strong throughout next year.

About half of all hydrogen peroxide is used by the pulp and paper industry for bleaching. Analysts estimate that ECF bleaching will consume eight to 10 pounds of hydrogen peroxide per short ton of pulp.

After the conversion to ECF, the pulp industry's demand for peroxide is projected to grow by less than 1 percent per year, in line with increases in pulp capacity.

In addition to peroxide's expected slowdown in pulp and paper, the textile market has declined as textile manufacturers move offshore. Smaller markets, such as water treatment and reclamation, are growing in conjunction with the economy.

Producers are developing new uses for peroxide in specialty applications. In the electronics industry, high-grade peroxide is used in semiconductor production and as an etchant in circuit board production. US demand for electronic and high-purity peroxide is already 6 million to 10 million pounds per year, and it is growing faster than any other peroxide application, according to SRI.

But despite the industry's efforts to broaden peroxide's uses, Mr. Barenschee expects its main uses to remain its largest. "So far, none of the new developments has the potential to rival any of the large applications like pulp and paper or chemical syntheses," he says.

CHLORALKALI--Because of a small fire, Dow Chemical Company has mothballed a portion of its 500,000-ton membrane cell chloralkali plant Freeport, Tex., for three to six weeks. No injuries or harm to the environment occurred, although up to 20,000 metric tons of production was lost. Dow's global marketing director, Rob Broomham, says that alternate supplies of chlorine and caustic soda have been obtained to meet customer obligations.

HYDROUS SILICATE--PQ Corporation will raise its schedule and off-schedule prices for all hydrous silicate powder products by 6 percent, effective October 27. The increase, an attempt to offset energy and transportation costs, is the first in three years for PQ's hydrous silicate powder products.

INDUSTRIAL GASES--Praxair Inc. has signed a marketing license agreement with Badische Stahl Engineering GmbH (BSE) authorizing the German company to sell and install Praxair's patented CoJet gas injection system. BSE and its subsidiaries will market the technology to electric arc furnace steel mills.

MAGNESIUM SULFATE--PQ Corporation will raise its schedule and off-schedule prices for magnesium sulfate crystal by 50c. per hundredweight and liquid by 25c. per hundredweight, effective November 13.

SODA ASH--Natural soda ash production in August increased by 4,000 metric tons, to 875,000 metric tons, according to the USGS. Ending inventories dropped considerably. In just one month, supply decreased by 62,000 tons, leaving August inventories at an estimated 194,000 metric tons.

Wyoming trona production rose by 200,000 metric tons from July, reaching 1.399 million tons. Second quarter consumption was 0.7 percent lower than during the second quarter 1999.

"Although reported US soda ash consumption for the first half of 2000 is down slightly from the first half of 1999, indications are such that consumption will improve as several caustic soda consumers switch to using less expensive soda ash for their requirements," says Dennis Kostick, soda ash analyst for the USGS.

SODIUM SILICATE--PQ Corporation will raise its schedule and off-schedule prices for sodium silicate liquid by 60c. per hundredweight, effective November 13. PQ Corporation will raise its lump glass and anhydrous glass powder products by $1.50 per hundredweight, also effective November 13.

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