Alum Pressured by Raw Material, Energy and Transport Costs

20 September 2004 00:01  [Source: ICB Americas]

The North American aluminum sulfate (alum) industry is facing pricing pressure from rising raw material, energy, and transportation costs. Similar to other chemicals servicing the pulp and paper industry, the alum market has not seen a significant jump in new growth this year, as the market continues to be balanced overall and very mature, with annual demand growth in the range of 2 to 3 percent. Additionally, the water treatment market has not seen any additional growth of note over the past year.

In response to rising raw material, energy and transportation costs, at least one producer has raised prices for alum. In early September, GEO Specialty Chemicals Inc. increased prices for all grades of liquid and dry aluminum sulfate by $10 per ton. Commercial-grade liquid alum list prices are reported to begin at $175 per dry short ton, bulk tankers, while list prices for low-iron grade liquid alum are reported at $185 per dry short ton, bulk tankers.

“Alum is a mature commodity market with severe competition among suppliers,” says Randy Weimer, commercial development manager, Southern Ionics Inc. “Market suppliers have experienced depressed pricing for the past several years, but are now facing must-increases in prices due to significant alumina and sulfuric [acid] raw material increases. This cost pressure actually provides a much-needed boost in the market.”

The cost of raw materials is reported to be the most important factor adding pressure to the alum market. Alumina, a major input material, has been a significantly tight market over the past year. In particular, aluminum trihydrite (ATH) continues to be in unusually tight supply.

“The most significant factor affecting the alum industry today is the availability and cost of alumina,” says John Besson, president of Delta Chemical Corp. “Alumina demand is very strong currently due to demand worldwide to produce aluminum metal, particularly in China.”

Conditions for alumina are not expected to change in the near future. Alumina producers and secondary-market producers note that the alumina market is expected to remain very tight for at least the next two years. In early June, Almatis (formerly known as Alcoa World Chemicals) announced that all prices for activated alumina negotiated will increase by 10 to 12 percent for non-contract customers after July 1, 2004. In early August, Almatis raised product prices by $50 to $120 per metric ton on its complete portfolio of specialty alumina materials.

“Alumina, particularly ATH, is even tighter [than last year],” says Southern Ionics’ Mr. Weimer. “In fact, Alcoa and Kaiser, two major alumina producers, are restricting volumes under current contracts as supply is tight. There is also a worldwide shortfall of smelter-grade aluminas (SGA), which competes with ATH production. A given production line can produce SGA or ATH, and SGA is a much more largely traded commodity. Any decrease in demand for alum products could easily result in decreased ATH availability, as alumina producers favor production of higher-value SGA.”

Prices for sulfuric acid, which also remains tight, are also reported to be firm and rising. Sources in the alum industry report recent increases from $4 to $12 per ton from suppliers, and that currently, spot market prices for sulfuric acid are up $5 per ton over the previous year. According to another industry source, the price of sulfuric acid has risen from its 2001 trough of less than $30 per short ton to the mid-$50s per short ton, and suppliers are putting through price increases to reflect this situation as contracts allow.

Although the overall economic recovery in the US has resulted in improving conditions for the pulp and paper industry, alum has not seen a noteworthy jump in pulp and paper demand. Indeed, producers note that the alum market for pulp and paper appears to have slowed significantly, as pulp and paper operations scaled back due to economic conditions. Additionally, demand for alum in water treatment applications is threatened by competing substitute products.

“Overall, demand for alum has slowed due to retraction and consolidation in the pulp and paper market, a major market for alum,” says Mr. Weimer. “Also, increased fiber recycling reduces demand. On the near-term, however, demand for paper mills using alum is firm, as remaining mills are operating at high rates. Water treatment applications continue slow growth, though there are other substitute products that perform comparably.”

Though there have been no recently reported changes in nameplate capacity for alum producers, and few are anticipated for the near term, industry insiders speculate that further consolidation, even closings, may be possible. News of financial restructuring at Cleveland, Ohio-based Geo Specialty Chemical Inc., one of the largest alum producers in the US, has led to conjecture about changes in the alum industry. Earlier this year, Geo Specialty missed an interest payment on its bonds, which triggered a 30-day grace period to lenders. As of June 30, Geo Specialty filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws.

GenTek Inc., the parent company of General Chemical Corp., the largest North American alum producer, emerged from Chapter 11 bankruptcy proceedings last November.

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