Hydrogen Peroxide Prices on the Rise, But Demand Expected to Slow This Year

22 January 2001 00:00  [Source: ICB Americas]

By Jennifer Ouellette

Prices for hydrogen peroxide continue to rise as producers struggle to recoup losses incurred from skyrocketing energy costs. After two years of strong growth as high as 10 percent, fueled by the recovery of the pulp and paper industry and compliance with new environmental regulations, the industry is expected to post significantly lower growth in 2001.

The slowing demand comes at a time of rising prices, which are resulting in part from higher production costs. Solvay Interox Inc. will raise its off-list prices for all grades of hydrogen peroxide, except electronic grades, for the entire Nafta region, effective February 1. For US customers, this will mean an increase of 2.8 cents per pound for 70 percent product, 2 cents per pound for 50 percent product, and 1.4 cents per pound for 35 percent product. Prices will go up by 4 cents per pound and C$130 per metric ton for 100 percent basis hydrogen peroxide. This increase is expected to hold.

Prices have been increasing since the end of 1998, but producer margins have never recovered from the sharp downturn in pricing from 1996 to 1998, and price levels remain well below the historical industry price curve, explains Thomas Ball, marketing director for hydrogen peroxide division of FMC Corporation. Gerhard Scherer, manager of business intelligence for Eka Chemicals Inc., reports that average pricing in 1993 was 23 cents per pound for 50 percent hydrogen peroxide, with prices peaking in January 1996 at 33 cents per pound for 50 percent grade.

Compounding the situation has been the sharp spike in the cost of natural gas, which is a major cost driver in peroxide production, accounting for as much as 30 percent of production costs, depending on the specific plant configuration. "FMC will need a significant price increase just to offset the unprecedented rise in energy costs," says Mr. Ball.

Although producers successfully implemented two earlier price increases in 2000, rising production costs have offset margin gains. "The strong increase in production costs, primarily due to the base raw material natural gas, more than consumed the gains obtained from the increases," says Ernst Barenschee, business director of peroxygen chemicals for Degussa-Hüls. "In addition, the implemented increases have been limited by contract terms in many cases, with the result that prices remain below the long-term average necessary to justify new investments." Earlier this month, Degussa-Hüls implemented a $0.001 per pound temporary fuel surcharge on all deliveries of hydrogen peroxide within the US and Canada.

The pulp and paper industry, which has struggled for several years, is the largest end-use sector for hydrogen peroxide, accounting for 65 percent of the North American market, according to Mr. Scherer. Throughout 1999, US paper companies focused on closing mills and consolidation to combat weak pricing and reduced growth, but the industry rebounded in late 1999 and the first half of 2000. During that time period, the Canadian Pulp and Paper Association reported record shipments of pulp, paper and board, with mill operating rates reaching 94 percent and profits doubling to roughly $600 million. North American pulp and paper producers consumed an estimated 900 million pounds of hydrogen peroxide in 1999 alone.

However, despite high-volume sales and a strong US economy, commodity pulp and paper prices have been depressed worldwide, with lower profits and only modest sales. Capacity increased by a mere 1.5 percent in 1999 and 1.3 percent in 2000, compared with an annual average of 2.1 percent since 1991, according to the latest industry data by the American Forest & Paper Association (AF&PA).

The AF&PA projects capacity to rise at an annual average rate of 0.7 percent in the next three years. "As far as we can tell, the pulp industry recovery of the last 18 months is over," says Mr. Ball. "All indicators suggest that the North American pulp and paper industry is headed into a slowdown in 2001." The US economy is also showing early signs of a slowdown in 2001, and other major end-use sectors for hydrogen peroxide are expected to slow down with it.

The industry has also struggled with overcapacity following the Environmental Protection Agency's decision to opt for elemental chlorine-free bleaching (ECF) instead of total chlorine-free (TCF) bleaching, a process that uses four times as much hydrogen peroxide as ECF, adding capacity accordingly. Several producers idled capacity to alleviate the pressure on the market. Solvay idled 110 million pounds at its Deer Park, Tex., facility in 1998, which remains shut down. FMC mothballed 30 million pounds of annual capacity at its plant in Springhill, West Va., and another 100 million pounds of annual capacity at its Bayport, Tex., plant that same year. FMC has restarted production at the Bayport facility, producing hydrogen peroxide as customer demand requires. Don Magid, marketing director for Solvay, reports that the company is waiting to see if market conditions in 2001 improve sufficiently to economically justify reopening the Deer Park plant.

That strategy has been largely successful, with Solvay's Mr. Magid reporting tight supplies for hydrogen peroxide going into 2001, with operating rates in the upper 90th percentile. He expects demand to continue to increase, since the chemical "is economical and an ideal chemical for environmental applications and bleaching," but at a slightly lower rate of 5 percent.

Other major producers expect similar lower growth rates, largely because the ECF conversion process is nearing completion, as well as the slowdowns in pulp and paper and the US economy as a whole.

However, FMC's Mr. Ball is less sanguine, projecting a growth rate as low as 2 percent in 2001, depending on the severity of the economic slowdown. "My experience is that people tend to project off of recent history," he explains. "When you've seen two years of 10-percent demand growth, it's hard to turn around and project the next year to only grow at 2 percent. But some of the fundamentals that fueled that strong demand in the past are definitely changing." Degussa's Dr. Barenschee also forecasts growth of between 2 percent and 4 percent in 2001, with supply and demand coming into balance, and no new capacity slated to come on line. "Debottlenecking seems to be sufficient to accommodate further growth in demand for the next years to come," he says.

CALCIUM CHLORIDE--Tetra Tech- nologies Inc. will increase prices for the following products by $20 per short ton, effective February 1, or as contracts allow: Tetra 80, 77-82 percent calcium chloride pellets, Express 94-97 percent calcium chloride mini-pellets, Briners grade 94-97 percent mini-pellets, and FCC grade 94-97 percent calcium chloride mini-pellets.

CAUSTIC SODA--Nexen Chemicals has increased the prices of the following products, effectively immediately, or as contracts permit: caustic soda by C$40 ($26.46) per ton; 50 percent caustic solution by C$615 ($407) per ton; and 73 percent caustic solution by C$630 ($417) per ton.

HYDROGEN PEROXIDE--FMC Corporation will increase off-list hydrogen peroxide prices, effective February 1, by 4c. per pound (100 percent basis) in the US and C$130 per metric ton in Canada. The increase is specific to standard, technical chlorate, food, cosmetics and environmental grades of hydrogen peroxide.

SILICAS--Crosfield Company has initiated a 6 percent increase on its silicas product line, effective February 1, or as contracts allow.

SODIUM METASILICATE--PQ Corporation has increased schedule and off-schedule prices for sodium metasilicate pentahydrate $1.60 cwt, and anhydrous has increased by $2.50 cwt.

SODIUM SILICATE--Occidental Chemical Corporation has increased its schedule and off-schedule prices of S-25 sodium metasilicate anhydrous by $2.50 cwt or $50 per ton, and Uniflo 26 sodium metasilicate pentahydrate by $1.60 cwt or $32 per ton, effective immediately. The increase applies to all spot customers and as terms permit to contract customers.

PQ Corporation has increased schedule and off-schedule prices for sodium silicate liquids $0.75 cwt, while lump glass and anhydrous glass powder products have been increased $1.90 cwt, effective immediately, or as contracts permit.

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