UpdateTight supplies push up US caustic soda

25 January 2008 00:08  [Source: ICIS news]

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HOUSTON (ICIS news)--US caustic soda contracts settled in the $470-520/DST (dry short ton) range for December, up $50/DST from November on tight supplies, buyers and sellers said on Thursday.

While some producers maintained that the full nomination of plus $75/DST free on board (FOB) was implemented for December/Q1 contracts, others producers said the hike was implemented on a $50-75/DST scale depending on such factors as the amount purchased and the grade of product.

Relatively small consumers of caustic soda reported contract settlements at or near $520/DST, while contracts for some of the largest non-alumina sector buyers were heard settled at $470/DST, before discounts.

Market participants expressed relief that the difficult negotiation session had ended. The $75/DST price hike initially irked some buyers when it was announced in late October.

Many participants complained that such a large hike had not been proposed since Hurricane Katrina disrupted production on the US Gulf coast in 2005.

However, producers maintained that caustic soda supply has been similarly constrained by the US housing crisis and a prolonged slump in new home construction, a key consumer of chlorine derivatives and the driving force behind US chlorine demand.

Chlorine and caustic soda are co-products manufactured simultaneously, although chlorine demand typically drives production rates - 87% of US capacity in December, according to industry reports - due to safety issues involved in storing chlorine, a toxic gas.

Yet despite tight supply and strong demand conditions in the US caustic soda market, the initial $75/DST was not ultimately implemented across the full spectrum of US buyers, sources said.

Some producers pointed to Occidental Chemical (OxyChem) as the first producer to defect from the initial price nomination, while other sources said OxyChem responded to undercutting from other producers, including Olin, Formosa, and Georgia Gulf.

Sources cited an array of potential motives for producers’ acceptance of a reduced price hike for some contracts. Some charged that it was an attempted market share grab from one or many producers, while others pointed to potential arbitrage opportunities for Asian caustic soda producers in the US Gulf if contract prices increased $75/DST across-the-board.

Sources said the tenacious push-back from US buyers was also a factor, but most buyers and sellers agreed that price concessions from producers facilitated a quick end to negotiations.

“Once we made the adjustment, the market settled out and it has been very quiet ever since,” one producer said.

 

 

By: Greg Holt
+1 713 525 2653

< previous article(ICIS Chemical Business podcast November 2, 2009)

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