25 October 2010 00:00 [Source: ICB]
Supply tightens on chlor-alkali outages and low operating rates. Producers aim for Q4 hikes
Significant price hikes for European caustic soda are being anticipated for the fourth quarter (Q4) as supply continues to tighten because of low chlor-alkali operating rates, three instances of force majeure currently in place, and an increase in caustic soda demand from pulp, paper, and alumina markets.
The majority of producers are aiming for three-digit hikes in their Q4 contract negotiations, targeting price hikes of between €100-120 ($139-167)/dry metric tonne (dmt). Early settlements were reported at €80-120/dmt, depending on the source.
ICIS assessed the liquid caustic soda spot price as of October 15 between €330-350/dmt, FOB (free on board) NWE (Northwest Europe) - up by 22% compared with values reported a month ago. Prices a year ago were at €185-200/dmt.
"Buyers now realized that supply has been close to the edge for months," a major European producer said on the sidelines of the of the annual European Petrochemical Association (EPCA) meeting held in Budapest, Hungary, earlier this month. "The latest force majeure from Arkema has just tipped it over the edge. The price increase of over €100/dmt is going through with very little resistance."
French producer Arkema has had force majeure on its domestic caustic soda supplies and for its export markets in force since mid-September, because of technical difficulties in its vinyl chloride monomer (VCM) production. The VCM disruption has hindered Arkema's production of chlorine, the co-product of caustic soda.
Since chlorine cannot be stored, chlor-alkali plants are operated in line with chlorine demand. Arkema has a total chlor-alkali production capacity of 831,000 tonnes/year in France, located in Fos, Jarrie, Lavera and Saint Auban, according to industry group Euro Chlor.
Arkema said it was not able to offer caustic soda on the spot market. "We have no indication as to how long the force majeure will be in place," a company source said.
The worker strike in France has exacerbated the limited VCM production, as Arkema said it could notmove VCM to where it was needed.
"The only transportation available is truck and you cannot truck VCM due to safety restrictions," the source said. "We have a small private port in the South of France, which is still running and we can only move just enough VCM to keep us operating at low levels."
Vestolit declared force majeure for its caustic soda production in Marl, Germany, effective September 1, which was expected to last for 10 weeks. The move was attributed to a transformer failure in the Marl facility because of a lightning strike in July. Customers are reportedly on 40% allocation for caustic soda.
The Marl plant has 285,000 tonnes/year of caustic soda capacity, according to ICIS data.
Anwil declared force majeure in June for its caustic soda produced in Wloclawek, Poland, because of a breakdown of an electrolysis apparatus. The FM was expected to last for up to five months. Anwil's chlor-alkali capacity is estimated by Euro Chlor at 214,000 tonnes/year.
The industry group estimated the average chlor-alkali capacity utilization rate in September at 73%, down from 80.7% seen in August. European caustic soda stocks in September fell by 8.7% to 224,528 tonnes, compared with a month ago. September 2009 stocks totaled 240,641 tonnes.
Many producers are optimistic that the tighter availability would support their bid to raise prices, especially given the ongoing French strike. Some expect Q4 caustic soda contracts to even reach or surpass €400/dmt, FD (free delivered) NWE.
Some consumers balked at the idea of three-digit hike ideas, even though they acknowledged that the hikes would be difficult to avoid, given the tight supply.
"We might be forced to accept €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," one large alumina buyer said.
This view was rejected by one manufacturer, which stated that the US caustic soda market also had little availability and had more attractive export opportunities in South America.
While a number of European producers confirmed that the three-digit increases are now achievable, buyer input on the acceptance of caustic soda price at over €400/dmt FD, were not widely forthcoming.
European buyers also believe that the short supply, which is largely caused by resolvable constraints such as forces majeures, will ease in the short term.
Vestolit's caustic soda production in Marl remained on force majeure. "By the end of November, a new transformer would be added and following this implementation, we hope to be able to reexamine the force majeure position," a company source confirmed.
Arkema's force majeure remains in place, although the producer is ramping up its operating rates.
There is no update regarding Anwil's force majeure, although recent reports have indicated that normal production from its Wloclawek facility is expected around early December.
Several buyers noted that producers would attempt to hold operating rates steady at around 80-85% over Q4 2010 and Q1 2011 as they capitalize on higher caustic soda prices.
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