OUTLOOK '11: Steady pace likely to characterise US chlor-alkali

29 December 2010 17:04  [Source: ICIS news]

By Judith Taylor and Ruth Liao

HOUSTON (ICIS)--The US chlor-alkali market is likely to be characterised by a steady pace in 2011 as it seeks to maintain hard-kept margins in caustic soda and polyvinyl chloride (PVC).

Expectations for a steady pace were heard from buyers and sellers alike. Most players were hopeful the seesaw action of 2010 was over.

Demand fluctuations and price concerns in 2010 stemmed mainly from the slow US economic recovery, especially in the housing and construction sectors. 

On the chlorine side, the key derivative PVC market will look for increased housing/construction recovery in 2011 to set the tone for the chlor-alkali sector.

Expectations for the housing sector crept up steadily in the latter part of 2010, and it is anticipated to show resurrected growth in the coming year.

The National Association of Home Builders (NAHB) estimated new housing starts marginally rose at about 8% to 9% for 2010, but were projected to climb in 2011 and 2012.

Annual housing starts for single-family homes were expected to increase in 2011 by 37%, or about 655,000 units. By 2012, the number of new homes built could rise by as much as 48%, or 970,000 units.

The US home building sector is a major downstream consumer market for the chemicals industry.

Each new home built represents about $16,000 (€12,000) worth of chemicals and derivatives used in the structure or in production of component materials, according to the American Chemistry Council (ACC).

If the housing and construction sectors recover to what some are calling the “new normal” in 2011, PVC resin sales are likely to maintain an even pace for the chlor-alkali industry.

On the caustic side of chlor-alkali production, caustic soda sellers in 2010 managed to raise prices from the benchmark lows of 2009. But by the fourth quarter, buyers were beginning to balk at the successive price hikes, largely rejecting a $50/dmt (dry metric ton) upward push.

Large US buyers confirmed healthy demand in the alumina and pulp/paper segments, and said they were confident that 2011 would continue to generate solid sales in these end-use areas.

At the same time, buyers remained cautious about 2011, unwilling to re-live the price volatility that saw a high of almost $1,000/dmt in mid-2008 fall to a benchmark low of about $15/dmt by the fourth quarter of 2009.

While 2010 represented refreshed demand and opportunities to raise prices to the fairly steady $355-390/dmt currently dominating the export spot market, few players expected 2011 to show a continuing rise in caustic pricing.

Buyers described caustic supply/demand as largely balanced by the fourth quarter, and most said they expected operating rates to sustain a steady pace well into 2011.

Caustic soda sellers continued to describe supply as snug, but were also generally expecting the market pace to remain stabilised.

In Latin America, caustic soda demand from all sectors in the region was expected to continue strong into early 2011.

Participants projected healthy activity in the alumina, paper/wood pulp, and soaps and detergents segments throughout the region, with demand predicted to be particularly robust in the dynamic Brazilian economy.

Caustic soda prices in Latin American markets were expected to be firm to steady in the first quarter, after gradual price increases in the second half of 2010 were supported by snug availability and a firm US Gulf market.

Some participants predicted prices would level as pockets of supply tightness in Latin America eased, but market sources were not projecting caustic soda values to decline at the beginning of 2011.

($1 = €0.76)

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By: Ruth Liao
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