OUTLOOK '12: US chlor-alkali market future rests on housing starts

29 December 2011 20:00  [Source: ICIS news]

By Ken Fountain

HOUSTON (ICIS) --With the US economic recovery still sputtering, participants in the US chlor-alkali market are somewhat muted in their hope that 2012 will be an improvement on a lacklustre 2011.

Buyers and sellers alike expect the chlorine derivatives and caustic soda markets to remain in the doldrums at least in the early part of the year. But many are projecting increased activity by the spring, at the earliest, and certainly by the second quarter.

Those expectations were boosted by encouraging year-end news on the domestic home-building front.

Housing construction is a major downstream consumer market for the chemicals industry, particularly for polyvinyl chloride (PVC), the key derivative in the chlor-alkali chain.

The American Chemistry Council (ACC) estimates that each new home represents $15,000 (€11,550) worth of chemicals and derivatives used in the structure or in production of component materials.

On 20 December, the US Commerce Department said housing starts for November rose by 9.3% month on month to their highest level since April 2010. The November figure of an annualised rate of 685,000 units represented a 5.7% increase on the 551,000 starts in November 2010.

Also in December, the National Association of Home Builders (NAHB) said its monthly housing market index had risen by two points to 21, its highest level since May 2010. The measure shows increasing confidence by US home builders about the near-term outlook for their industry.

In November, the NAHB forecast 684,000 total single- and multi-family housing starts in 2012, up from the 597,000 the trade group predicted at the same time a year earlier. By 2013, the number of new homes built could rise to 934,000 units, the association said.

If the home-building sector does pick up, it would bode well for demand for PVC as well as for feedstocks ethyl dichloride (EDC) and vinyl chloride monomer (VCM).

But there are still concerns that the continuing eurozone debt crisis could intensify the recession in Europe. If so, that, coupled in turn with slowing growth in China, could endanger the still-struggling US recovery.

On the caustic soda side, chlor-alkali availability was fairly tight in late 2011, with little movement in prices. US producers and buyers alike were still weighing the effect of the 13 November explosion and fire at the three VCM lines at Tosoh’s plant at Nanyo, Japan.

While the investigation into the cause is continuing, Tosoh has not declared force majeure. All three VCM lines were shut down and their restart dates remain unclear.

Tosoh’s 1.1m dmt/year caustic soda plant was running at a low operating rate at year’s end.

US producers and sellers said that while Asian demand for caustic soda was being met for the time being, that could change by the first quarter of 2012.

While there were some spot deals in the waning weeks of the year, efforts by producers to increases prices were being resisted by buyers.

Some said that situation was likely to continue into January, after which the market could begin to loosen.

In Latin America, caustic soda market participants noted upward pressure on prices into early 2012, on the back of recent US price-increase announcements propped by snug supply.

Participants said that lower chlor-alkali production rates were the result of weak demand for PVC, tightening caustic soda supply and upward price pressure in the first quarter of 2012.

While PVC producers in the Americas have spoken of higher prices in January on rising costs of feedstock VCM, resin buyers’ responses focus on tepid demand, particularly from the key US construction sector, and on competitive Asian offers.

Activity is expected to remain weak in some Latin American countries until the first week of January because of extended holidays, year-end destocking, unusually heavy rains in the northwest countries of South America and depressed market sentiment on concerns about the eurozone debt crisis.

In some countries, especially Brazil, participants expect a period of seasonally low activity until after the Carnival holidays in late February.

Additional reporting by Ron Coifman


By: Ken Fountain



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