Sellers prepare for a snug Q2

13 March 2006 00:00  [Source: ICB]

European caustic soda inventories look set to tighten considerably in the second quarter (Q2) against a background of high energy costs and upcoming shutdowns, say producers.

This winter’s ‘massive’ electricity price spikes and high natural gas costs have taken their toll on the chlor-alkali market, forcing some to cut back production in recent months.

Many producers are already struggling to source material but a series of planned chlor-alkali and vinyl chloride monomer (VCM) maintenance turnarounds scheduled in Q2 are likely to exacerbate the situation. Around 11% and 8% of VCM production will be lost during March and April respectively, which will ‘have quite a dramatic effect on the balance for caustic soda into the spring’. One caustic supplier says it is sold out for March and has not been able to meet demand, instead having to reschedule several shipments.

As a result, a NWE producer is targeting a €50/tonne increase for Q2 contracts from 1 April. Some however, suggest that only a rollover or slight increase will be obtainable. ‘I don’t think that the tightness is going to be widespread enough,’ says a producer. ‘Europe is relatively tight but we hear rumours of price drops in the US. The psychological climate is not excellent for a major price increase.’

Although low, inventories are still well above the record lows last summer, when a series of outages kept caustic soda stocks below 250 000 tonne levels.

Statistics from chlor-alkali producers’ association Euro Chlor show that European inventories in January, at 322 711 tonne, were 7.2% up on December 2005, but 3.7% below the same period last year. Sellers say they unsurprised by the slight upturn since December, which they partly attribute to the drop in caustic soda exports to the US, where production has picked up considerably post Hurricanes Katrina and Rita. Euro Chlor figures show that production of co-product chlorine was 2% above December levels (874 731 tonne) at 891 816 tonne, but 3.2% down on January 2005 – a record monthly high of 921 739 tonne.

Despite caustic targets of around €75/tonne in northern Europe and €50/tonne in the south for Q1, only a modest increase of €10-30/tonne was achieved, taking numbers to €280-330/tonne FD levels. Demand is decent and has shown marginal improvement over Q4. Many expect consumption to remain relatively stable over the next few months.

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