FocusAsia caustic makers look for export options amid weak demand

09 July 2009 06:52  [Source: ICIS news]

By Ng Hun Wei

SINGAPORE (ICIS news)--The shutting of key arbitrage opportunities in the west has forced Asia’s caustic soda producers to look for alternative export options within the region though choices are limited, market sources said on Thursday.

Asia’s caustic soda spot prices have plunged by over 66% since the start of the year to $130-160/dry metric tonnes (dmt) (€94-115/dmt) last week, according to global chemical market intelligence service ICIS pricing.

With US buyers snapping up cargoes at four times that price only a year ago, the sharp price decline reflected dismal market conditions, traders said.

The arbitrage window to the US is absolutely closed now. Producers cannot sell there now unless they are willing to take a big loss,” said a Chinese caustic soda producer.

“Demand is also very weak in South America because of low prices there. We have no choice but to look for more outlets in Asia-Pacific,” said another northeast Asian producer.

Bu export options in Asia were few, traders and producers said.

On paper, China, Japan, South Korea and Taiwan are among the biggest caustic soda producers in the world and have no need for imports. Australia, home to the biggest alumina producers in the world, imports on average around 2m tonnes of caustic soda a year but its demand had been dented by the global economic downturn.

Amid the generally depressed market conditions across Asia-Pacific, only India and Southeast Asia could be considered as significant export outlets, traders and producers said.

India has seen a fivefold increase in its caustic soda imports in recent months due to a combination of firm domestic demand and low chlor-alkali operating rates, local traders and producers said.

The country imported around 5,000 tonnes a month at the start of the year but this surged to 25,000 tonnes in the past two months. More cargoes appeared to be headed its way in the next two months at least, industry sources said.

Traders also reported a pick-up in exports to Southeast Asia. Spot material had been heard sold in recent weeks to Indonesia and Thailand, both of which, on paper, have the capacity to be net exporters.

With domestic prices in southeast Asia heard at between $200-400/dmt delivered (DEL), sellers were heard to be mulling further arbitrage opportunities.

Some traders and producers, however, noted that these export alternatives could not replace the diminishing Asia-to-US trade flow.

“Firstly such export options were available to only a few market players. Secondly, we don’t expect these outlets to remain open for long”, said a caustic soda trader.

A prime example was India, the trader said. A slew of anti-dumping duties slapped on various caustic soda producers meant that only a few market players in Asia have access to the Indian caustic soda market.

Even so, these sellers have to contend with the influx of competitively-priced US cargoes that had been streaming into Asia in recent months, the trader added.

Prospects of India as an export outlet also looked set to dim further after the local chlor-alkali association petitioned for safeguard duties on caustic soda imports, market players said.

One trader has already noted a decline in buying interest from one of its Indian customers.

Southeast Asia market players meanwhile were bracing themselves for the traditional slow-down in demand in late-August, when Ramadan, the Muslim month of fasting, begins.

The spectre of competitively-priced US cargoes making its way into the Southeast Asia, while unlikely, continues to be a concern among some Asian caustic soda producers.

Traders and producers have also begun exploring other unconventional outlets. Some sellers were rumoured to have succeeded in exporting material to China and South Korea in recent weeks.

Even if that was true, such trade flows would suffer from the same limitations as other export outlets-- they were unlikely to be sustainable as both China and South Korea were net exporters, traders and producers said.

“Only a genuine recovery in the US economy can help to improve the situation substantially,” said a caustic soda producer.

($1 = €0.72)

For more on caustic soda visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Ng Hun Wei
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