FocusChlor-alkali producers mull €50/t hikes

14 March 2008 16:25  [Source: ICIS news]

By Adal Rafiq

 

LONDON (ICIS news)--Europe’s chlor-alkali producers were mulling over the potential for significant hikes as second-quarter contract negotiations loomed, with major producer Dow targeting a €50/tonne ($78/tonne) rise from 1 April, market sources said on Friday.

  

As a prelude to quarterly contract discussions, prices were already being pushed up by €20-30/tonne in Germany for monthly business.

 

Other northwest European producers were also contemplating significant increases, particularly in Germany, although decisions on the final announced price levels were pending.

 

Upon hearing the announcement of plus €50/tonne, some sellers said they might have been aiming too low but some were wary of the larger announcements, saying “these numbers have been seen in the market before but did not materialise”.

 

“Producers had lost some credibility in the past,” said one trader. “When they wanted to go for a small increase, the announcements would be big, but they would only achieve a small portion of it. If they wanted a rollover, or just to avoid any decreases, the increase announcement would be smaller.”

 

“Prices are at a historical high,” said the trader, adding that “product is tight and demand in the US so strong, that sellers would have no problem placing any product they have. It looks like increases are certain, it is just a question of how much buyers can fend off”.

 

The main driver was the US market, where chlor-alkali producers were “feeling the bite” of the current woes in the economy and its affect on polyvinyl chloride (PVC) demand.

 

“Europe is lagging behind but we are beginning to get it,” said another producer.

 

The gap in prices between Europe and the Americas was growing, with Europe lagging behind in terms of the level of increases demanded. Latin American sellers were heard asking for plus $70/tonne and sellers in the US plus $80/tonne.

 

“Considering recent force majeure declarations and the closure of plants, this is coming together like an avalanche,” one source said.

 

However, few sellers in Europe have been able to take advantage of the increasingly attractive export opportunities across the Atlantic.

 

“US prices are approaching $600/DMT [dry metric tonne] and Latin America the $700/DMT but we are on order control and are turning down enquiries”, said one producer. 

 

In Europe, however, the spot market has all but disappeared.

 

Prices were last assessed at $390-410/DMT on a FOB (free on board) NWE (northwest Europe) basis, according to global chemical market intelligence service ICIS pricing, although numbers were largely notional in the absence of actual deals.

 

“If we did have some tonnes available for a spot sale, we would be looking for around $10-20/DMT more”, said the seller.

 

Producers in the Mediterranean were facing similar issues. So far, no announcements have been made but sources said they were contemplating similar hikes.

 

“If we sold any spot product, we would not do it for less than $420-430/DMT FOB MED (Mediterranean),” the seller added.

 

Negotiations for second-quarter ethylene contracts would also play a significant part in caustic soda talks.

 

In the search for a better return on their electro chemical units (ECUs) chlor-vinyl producers will look to offset the current slowdown in downstream polyvinyl chloride PVC with increases on caustic soda.

 

PVC sellers will be looking “to get at least half of any ethylene increase in Q2. If they don’t manage that, then chlorine is devalued, and the pressure is on caustic to make it up. This comes at a time when energy costs are already making it tough to produce chlorine”, said one seller. 

 

But the signs did not bode well with some trader sources describing expectations for PVC as weak for the rest of the year, “so any increases will have to come from caustic”.

 

($1 = €0.64)

By: Adal Rafiq
+44 20 8652 3214

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