US chlorinated solvent prices coming down after year of soaring

07 September 2011 16:29  [Source: ICIS news]

By John Dietrich

HOUSTON (ICIS)--For much of the past year, US sellers of chlorinated solvents have needed little creativity. The negotiating process with customers has been simple: nominate a price increase, push the price increase through, repeat.

From 1 August 2010 to 1 August 2011, spot prices for methylene chloride in the US rose to an average of 65 cents/lb ($1,433/tonne, €1,032/tonne) FOB (free on board) from 43.5 cents/lb FOB.

Spot prices for perchloroethylene (perc) rose to an average of 110 cents/lb FOB from 54 cents/lb FOB, and spot prices for trichloroethylene (TCE) rose to an average of 93 cents/lb FOB from 69 cents/lb FOB.

“It’s been strictly market demand, supply-demand fundamentals,” a producer said about the rise. “That’s 99.5% of it right there.”

The majority of the increased demand has come from producers of hydrofluorocarbon (HFC) refrigerants, such as R-125, R-410a and R-134a. Each of these uses one of the chlorinated solvents as a feedstock.

The proliferation of HFCs as the most in-demand refrigerants is a result of the Montreal Protocol. The treaty, which is designed to protect the ozone layer by phasing out the production of harmful materials, was signed in 1987.

By 1996, the treaty called for the phase out of chlorofluorocarbons completely, including refrigerants that used them as a feedstock. By the 2009-10 time period, hydrochlorofluorocarbons (HCFCs), such as the Freon line, were phased out.

This has left the HFCs as the dominant refrigerant liquids in commercial, industrial and automotive use, and boosted demand for chlorinated solvents.

“Before all of that, these products had low profit margins, and were rationalised across the globe,” another producer said.

“These products were money-losing businesses,” said the first producer describing the chlorinated solvent market before the proliferation of HFC use.

Once refrigerant demand boomed, prices soared. And price increase nominations seemed to come out almost monthly. The refrigerant buyers were more easily able to pay higher prices for material.

“The market dynamics had truly and completely shifted to the producers,” a producer said.

While the refrigerant portion of the market seemed to handle the ever-increasing prices, the smaller solvent market struggled.

“We’ve been struggling with this new reality for quite a while,” a buyer from the solvent market said. “An extra 30 to 40 cents per pound is a big hurt.”

Many solvent buyers started looking overseas to Asia and eastern Europe for material to import but this was a hit-or-miss strategy.

Often, with chlorinated solvent supply tight across the globe, there was no material to be found. Buyers also complained that imported material was not as high-quality as US product.

Adding to buyers’ woes was the constriction of supply in the US.

In addition to capacity cutbacks caused by the low margins of the chlorinated solvents business, there was pressure from the US government to curtail production.

There are many federally and state-funded programmes designed to restrict the use of perc in the dry cleaning industry.

The International Agency for Research on Cancer classified perc and TCE as Group 2A carcinogens, or “probably carcinogenic to humans”.

TCE is also in the process of seeing its most common HFC, R-134a, phased out. The refrigerant is the dominant blend for automotive use, but is in the process of being replaced by HFO-1234yf, a fluorinated hydrocarbon.

In Europe, methylene chloride is banned for use as a paint stripper for consumers and most professionals.

With the pressures on the chlorinated solvent producers, two shutdowns took place in 2010, further constraining supply and giving increased leverage to sellers.

Dow Chemical shut down its perc plant in Aratu, Brazil in the second quarter of 2010, and has idled its chlorinated solvent plant in Plaquemine, Louisiana.

In the US, there are only three major producers and one major importer of the chlorinated solvents. Dow Chemical and Occidental Chemical (OxyChem) produce methylene chloride, and INEOS Chlor imports it from Runcorn in the UK.

The US producers Dow, OxyChem and PPG Industries each produce perc, and Dow and PPG each produce TCE.

Still, there is finally some relief in sight for beleaguered buyers. Prices for perc fell for the first time in more than a year at the end of August, dropping to an average of 95 cents/lb as cooler weather hit the US, softening demand for refrigerant production.

However, the softness is expected to be short-lived. Producers are ready to push prices higher, recouping years of poor or no profit margins while waiting for the day when phase-outs are final.

Until then, business is good.

($1 = €0.72)

By: John Dietrich

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