Inorganics: Olin's exit of mercury cell chlor-alkali is positive for industry

03 January 2011 00:15  [Source: ICB]

Plans to phase out the technology will boost competitiveness

US chlor-alkali producer Olin's plan to end the use of mercury cell technology in chlor-alkali manufacturing represents a positive move for the US chlor-alkali market, according to industry analysts.

A global capacity buildup, especially in China, is putting pressure on North American players to further rationalize in order to remain profitable. Producer initiatives to phase out mercury cell technology - driven by pending US legislation on mercury and customer requests - could represent an opportunity to further manage capacity going forward.

Mercury cell accounts for 3% of US chlor-alkali capacity, or 474,000 short tons (430,012 tonnes), which comes from four plants - two from Olin, according to US-based credit ratings agency Fitch Ratings.

Olin will convert its 260,000 ton/year mercury cell plant in Charleston, Tennessee, to 200,000 tons/year of membrane-type capacity by the end of 2012 at a cost of $160m (€122m). Olin also plans to shut down its 100,000 ton/year plant in Augusta, Georgia, which will reduce the company's total chlor-alkali capacity by 9% by the end of 2012.

"Over the past 18 months, we have experienced a steady increase in the number of our customers unwilling to accept our products manufactured using mercury cell technology," said Joseph Rupp, Olin president and CEO. "The conversion of [the] Charleston facility will prevent the potential loss of these valuable customers."

The firm also cited pressure from the pending mercury legislation in the US Congress. A bill was passed on October 2009 requiring chlor-alkali producers using mercury cell technology to decide by June 30, 2012 to either shut them down by June 30, 2013 or convert those plants by June 30, 2015.

Olin expects to have lower operating costs and to produce higher-quality products from the use of membrane technology.

Bank of America Merrill Lynch analyst Aleksey Yefremov said that the Olin capacity reduction will not immediately impact US chlor-alkali prices, but should be positive for pricing power in two to three years. "Olin expects the rest of the industry's mercury cell capacity to close or convert eventually. In the coming years, Olin expects diaphragm chlor-alkali capacity to be under pressure to also convert or shut down as producers are facing reinvestment decisions and potentially weaker demand due to lower quality of caustic soda," said Yefremov.

By: Doris de Guzman
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