EPCA ’10: European caustic soda buyers expect high Q4 prices

05 October 2010 03:03  [Source: ICIS news]

By Stephanie Wilson

BUDAPEST (ICIS)--European caustic soda buyers anticipate significant increases in upcoming forth quarter prices due to tight availability of product, players from the sidelines of the 44th annual European Petrochemical Association (EPCA) meeting said late on Monday.

With three force majeure (FM) currently in place, prevailing low operating rates and a visible increase in demand from the key pulp and paper and alumina sectors, the majority of producers are looking to target three digit movements.

Indeed, some success has already reported to the tune of €100-150/DMT ($137-205/dry metric tonne) depending on the seller, with a number of them saying that one or two buyers are settling discussions earlier than usual in order to secure material and avoid any further increment.

“Buyers now realise that [supply in] the market has been close to the edge for months; this latest force majeure has just tipped it over edge,” a major producer noted. “The €100/DMT plus is going through with very little resistance.”

While consumers acknowledged that the hikes would be difficult to avoid due to tight availability, most baulked at the idea of three digit pricing ideas.

One large alumina buyer conceded: “We might be forced to accept a plus €70-80/DMT at some of our accounts, but these €100-150/DMT figures will not be possible. It would take the price above €400/DMT, which would open the market to US imports.”

This view was rejected by one manufacturer who was active in both markets, outlining that the US market also had little availability and attractive export opportunities in south America. 

However, with the market so volatile in previous weeks, a second buyer remarked that anything could be possible in October: “If you said to me that they [the producers] would be able to get above €30/DMT three weeks ago, I would have said no way, but now we see that the increase is likely to be above €50-70/DMT. Will it be sustainable though? Probably not.”

The question of sustainability in terms of pricing was another key topic of debate among market players.

Many producers argue that industry body Euro Chlor’s figures show increasing daily output, waning caustic soda stocks and dropping export volumes, all of which suggest a fundamental uptick in demand.

This is echoed on a global basis and highlighted by improving European export prices, suppliers say.

Others also highlight that the lacklustre demand for chlorine – the co-product of caustic soda and key driver of chlor-alkali production – will also hold the caustic soda market tight in both the long and short term.

Several players outlined that European demand for polyvinyl chloride (PVC – the main end use of chlorine) will be slower over the winter months, as construction activity traditionally slows down, which could result in the scaling back of chlor-alkali production over the fourth quarter.

Meanwhile, in the long term, this lacklustre demand for chlorine will continue to hold chlor-alkali operating rates below par until confidence in the financial markets returns and construction activity rebounds, sellers concluded. 

However, caustic soda buyers - and one or two less optimistic suppliers - argue that the current tight availability is not organic and therefore unsustainable.

They believe that the short supply is caused by resolvable supply constrains such as FM’s, which will ease availability in the short term. 

Looking further ahead, several voiced their expectations that producers will attempt to hold current operating rates of 80-85% steady over Q1/Q4 as they capitalise on higher caustic soda prices.

A major integrated chlor-alkali producer outlined that; “there is some room for improvement in the operating rates; the [chlor alkali] market is still fundamentally oversupplied globally – there will have to be some restructuring or consolidation.”

This was echoed by a second northwest European major manufacturer, who concluded: “We may see some interesting joint ventures in the future; maybe even customers and their suppliers. Buyers need to understand the value chain and realise how much we need the increase; they will not be able to get those low prices again.”

($1 = €0.73)

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

By: Stephanie Wilson
+44 20 8652 3214

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