OUTLOOK '08: Asia caustic soda to be firm

31 December 2007 07:15  [Source: ICIS news]

By Yao Wang

SINGAPORE (ICIS news)--Asian caustic soda prices are expected to remain firm in 2008 on strong demand from India, the US and Canada amid snug supply, major market players said on Monday.

"A supply gap caused by the closure of Dow Chemical’s facility in Canada has been driving Asian caustic soda prices in 2007. Robust demand from Australian alumina sector and the cancellation of export subsidy from China this year will support caustic soda prices in 2008," a major Taiwanese producer said.

The Dow plant in Fort Saskatchewan, Alberta, has a capacity of 500,000 dry tonnes/year. The closure of Dow’s Canadian caustic soda facility created a 300,000 dry tonnes/year demand from the US and Canada’s west coast.

With the yearly import demand of 400,000 dry tonnes, the US and Canadian west coast will need more than 700,000 dry tonnes of material from Asia, Mitsubishi Corp, Asia’s largest caustic soda trader with 1.5m dry tonnes annual trade volume, said.

Asian liquid caustic soda prices has risen this year amid snug supply, largely hovering around $270-300/dry tonne FOB (free on board) northeast Asia (NE Asia).

The only exception was a few weeks during and after the Chinese New Year when prices were at $255-265/dry tonne caused by mounting inventory in China, according to global chemical market intelligence service ICIS pricing.

Despite the general bullishness, some voiced uncertainty on the supply side.

“Two factors may depress chlor-alkali margins. One is strong chlorine values which will push up operating rates of chlor-alkali units and increase caustic soda output. The second factor was the uncertainty of China’s supply such as periodic low-priced exports and also its massive capacity expansions,” a Japanese trader said.

China caustic soda capacity is estimated to reach 14m dry tonne this year, of which 5-6% is channelled for export. China exported 720,000-850,000 dry tonne caustic soda this year after nearly 600,000 dry tonne of exports in 2006.

But not all feel the pinch from China's capacity expansion.

“New capacities in China could depress prices but a large percentage of the new output was far from the coastal areas. High inland transport costs could restrict these producers from exporting,” a Taiwanese producer said.

On 1 July, China government removed the 13% caustic soda export incentive rebate in an effort to reduce its ballooning trade surplus and mounting pressure on its currency appreciation.

Market sources noted with that the government measure in place, China’s caustic soda exports are expected to fall significantly or be eliminated.

Initial caustic soda contract negotiations between Asian producers and Australian alumina buyers for the first half of next year pointing to a $35-65/dry tonne increase than the current level indicate the strong uptrend of caustic soda prices for the next year.

Offers from Asian producers for the first half of next year to Australian contract customers are hovering around $310-340/dry tonne, compared with $275/dry tonne for the second half of this year.

Producers cited rising raw material costs such as salt and coal, for which a large number of contracts will expire by the year end, and new contracts for next year will be seeing 10-20% price increases.

With only one major capacity expansion of 150,000 dry tonnes/year at Tosoh’s Japan facility next year in Asia, and an estimated over 400,000 dry tonne/year demand growth in India and the US west coast alone, the region's tight supply will intensify in 2008, sources said.

A gloomy economic outlook for the next year from some major markets could cap production of polyvinyl chloride (PVC) and chlorine derivatives, and in turn, further jack up caustic soda prices.

The weak US dollar and rising inflation will also spurred the upward price trend for caustic soda, they added.

($1 = €0.68)

By: Yao Wang
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly