OUTLOOK ’12: Asia caustic soda market to remain uncertain

10 January 2012 06:15  [Source: ICIS news]

By Feliana Widjaja

SINGAPORE (ICIS)--Asia’s caustic soda market this year is shrouded in uncertainty as macroeconomic woes threaten to dampen demand although prices may find support via the weak by-product chlorine derivatives markets and reduced supply, industry sources said.

Spot prices were last assessed at $440-450/dry metric tonne (dmt) (€343-351/dmt) FOB (free on board) NE (northeast) Asia on 6 January 2012, according to ICIS.

They hovered at $470-490/dmt FOB NE Asia from early to mid-December 2011 following an explosion at Tosoh Corp’s vinyl chloride monomer (VCM) facility at Nanyo in Japan.

The company is not expected to recover its caustic soda production in the near future because of a prolonged shutdown of its VCM facility.

Chlorine, a by-product of caustic soda, goes into the production of VCM.

Caustic soda prices have softened amid subdued market activity towards the end of 2011. Furthermore, some chlor-alkali producers at Jiangsu in China were heard to have increased their operating rates in response to the bullish caustic soda market, leading to increased supply which weighed down on prices.

“[The] market is on a downtrend. Inventory seems rather high in east China,” a South Korea-based trader said.

Additional capacities that are coming on stream this year are expected to ease the tight supply situation.

Shanghai Chlor-Alkali is scheduled to start up its expanded chlor-alkali facility in Caojing in the first quarter of 2012. The company is boosting its 540,000 dmt/year caustic soda plant by an additional 180,000dmt/year

Nonetheless, there are other producers in China who are maintaining their production at reduced rates because of the persistently lacklustre demand in the chlorine derivative segment.

“There is still tightness in the market. Caustic soda output is limited because of low chlor-alkali operating rates amid the weak polyvinyl chloride [PVC] market,” a producer in China said.

“The market will reach a new balance in late Q1 or early Q2 because the vinyl chain is likely to have an upward momentum this year and Chinese chlor-alkali producers will increase their production,” the producer added.

Meanwhile, concerns about the eurozone debt crisis and the weak US economy are expected to persist this year and this could potentially dampen caustic soda demand, market sources said.

“Domestic demand in China is dropping. Alumina demand is going down as well,” a Japan-based trader said.

A number of market participants said prices will remain stable-to-soft in the near term because the slowdown in demand is countered by limited supply.

“Demand will be hit because of [the] poor economic situation but supply volume is still limited so the supply-demand balance should be quite stable,” a trader in Japan added.

Spot cargo availability is expected to remain limited because countries such as Japan, South Korea and Taiwan are unlikely to participate actively in the spot market in the early part of 2012 as they are focusing on supplies to the domestic market as well as contractual commitments. Thus, China is left as the main provider of spot parcels from northeast Asia for the time being, market sources said.

“The Japanese caustic soda market is still in a very tight situation and we are only supplying to the domestic market, with a little portion for contracts,” a producer in Japan said.

Northeast Asia is a major exporter of caustic soda and has an estimated capacity of 38.5m dmt, which is almost half of the global capacity, industry sources said.

China is the biggest caustic soda producer globally, with a capacity of 30m dmt out of the 80m dmt of global capacity, the sources added.

Some suppliers said the prevailing weak chlorine values will keep caustic soda prices afloat and prevent them from tumbling.

“Prices are a little weak now but they should keep stable because chlorine value is still very low and some producers’ stock levels are quite low,” a producer in China said.

In addition, several suppliers said the current slowdown in demand is due to seasonal factors and buying activity will pick up after the Lunar New Year holiday in China from 22-28 January.

“Prices are declining now because Chinese chlor-alkali producers will try to sell more caustic soda to reduce their inventory before the Lunar New Year, but after that demand should increase,” a producer in Taiwan said.

Furthermore, some suppliers are optimistic that the fundamental demand for caustic soda will continue.

“Demand for caustic soda will still be there because it is an important raw material,” a producer in China said.

“We don’t feel a big demand drop so we don’t see a clear reason for low prices of caustic soda,” a Japan-based trader said.

Meanwhile, the majority of buyers are adopting a wait-and-see approach in view of faltering prices and were not keen to commit to cargoes at the moment, market sources said.

“The outlook is uncertain. Our inventory is quite comfortable so we can wait,” a buyer in southeast Asia said.

($1 = €0.78)

For more pricing intelligence, visit ICIS pricing
For more on caustic soda, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Feliana Widjaja

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