FocusPlayers bullish on Asia caustic soda

28 April 2008 09:10  [Source: ICIS news]

By Hun Wei Ng

 

SINGAPORE (ICIS news)--Despite Asia caustic soda spot prices having risen 34% since the strart of the year they are likely to remain firm in the second quarter due to strong domestic demand and tight supply amid a number of plant turnarounds, industry sources said on Monday.

 

Prices had risen to $380-400/tonne FOB (free on board) NE Asia and $430-440/tonne CFR (cost and freight) SE Asia (southeast Asia), according to global chemical market intelligence service ICIS pricing, and most traders and producers believed there might be still room for further increases.

 

“Unlike other products like PVC [polyvinyl chloride] for example, I am convinced that the caustic soda market will remain strong for the next few months. Regional consumption remains good while the supply-side factors still look bullish,” a southeast Asian chlor-alkali producer said.

 

Producers attributed the strong Asian demand, in part, to the thriving paper and textile industries, where caustic soda is used for bleaching and dyeing respectively. Prices of the various paper products in China, for example, had reportedly risen by 5 to 20% in the first quarter of this year.

 

“The paper and textile markets are doing well now. Many local paper mills are now running at full operating rates and this has pushed up the domestic demand for caustic soda,” said another producer based in southeast Asia.

 

One result of this strong domestic demand was that producers were allocating fewer supplies for the spot export market. An Indonesian and a Thai producer would reportedly stop exporting spot cargoes until at least after June, while another seller said his export volumes to southeast Asia were now only 60-70% of his “normal levels”.

 

“With this kind of demand, there is no chance for us to build up our supplies. We might only be able to start increasing our inventory levels until the fourth quarter of this year,” the seller said.

 

The robust demand came at a time when several caustic soda plants in the region, including in China, Japan and Indonesia, were scheduled for turnarounds. While these turnarounds had been planned in advance, some of the affected producers said they had difficulties building up sufficient inventories because of the strong domestic demand.

 

The tight supply situation facing some of these producers had led buyers to scour elsewhere for their caustic soda cargoes.

 

A trader noted he sold twice as many cargoes into southeast Asia in April month on month, partly because of the supply tightness in the region.

 

Another northeast Asian producer, who had sold mainly to US buyers this year, also noted higher levels of buying interest from southeast Asia in recent weeks. He had sold a 3,000 dry tonne cargo into southeast Asia two weeks ago at around $430-445/tonne CFR, he added.

 

There was little to suggest that such supply tightness will end soon.

 

A Japanese producer had already halted spot exports in May and June while awaiting complete expansion of its caustic soda plant but said last week it was unlikely to sell more cargoes into the spot market even after the expansion in June.

 

The upcoming Beijing Olympics in August could also further tighten supply as Chinese chlor-alkali producers might shut down their plants or cut operating rates to avoid running foul of the country’s environmental regulations, traders said.

 

“Caustic soda, in its liquid form, is difficult to store. It is possible that with the lower operating rates and low inventory levels, caustic soda exports from China could decrease during the Olympics,” a trader said.

 

In March, China exported about 107,863 tonnes of caustic soda.

 

While these demand and supply factors generally painted a bullish picture of the caustic soda market, market sources highlighted two caveats.

 

The first is a possible waning of demand from the US, which imports 50,000-60,000 tonnes of caustic soda a month from Asia, mainly on a spot basis. Some traders had expressed concerns US buyers might have high levels of inventories right now and so could reduce their purchases.

 

The second caveat is the growing resistance among buyers to rising prices.

 

“It is very difficult for end-users to pass on the production costs to their retail customers. If it gets to the stage where caustic soda buyers can no longer digest the cost increases, they could just cut the operating rates of their plants and I think that would be when you will see demand for caustic soda coming down,” a producer said.

By: Hun Wei Ng
+65 6780 4359

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