FocusEurope chlorine production at two-year low, caustic stocks up

13 March 2012 13:05  [Source: ICIS news]

By Abache Abreu

PVC is a key downstream market for chlorineLONDON (ICIS)--Manufacturing constraints in Europe’s chlor-vinyl markets have reduced chlorine production in February to a two-year low, while caustic soda stocks have increased on greater availability and softer demand, industry body Euro Chlor and market sources said on Tuesday.

Europe chlorine production in February 2012 was at 748,610 tonnes, the lowest level registered since 2009, a year remembered as one of the worst on record for chlorine's key downstream polyvinyl chloride (PVC) market.

Average European daily chlorine production for the region comprising the EU27, Norway and Switzerland stood at 25,814 tonnes in February, down by 4.8% from 27,114 tonnes in January and 10.6% lower than in February 2011.

Production outages in the PVC and upstream vinyl chloride monomer (VCM) and ethylene markets have had a major impact on chlor-vinyl production and feedstock chlorine offtake in Europe.

Shutdowns at French specialty chemical firm Arkema, Belgian producer SolVin and Spain-based Ercros were said to reduce Europe's overall stocks by 70,000 tonnes in February, resulting in a tight market.

Additionally, healthier demand from the start of the downstream construction season and low inventories due to heavy year-end destocking activity forced other players such as Japan’s Shin-Etsu and Germany's Vinnolit, to implement strict allocation on PVC supplies.

Despite the exceptionally low levels of chlorine offtake, inventories of co-product caustic soda for the region comprising the EU27, Norway and Switzerland were at 255,966 tonnes, 4.9% higher than the January levels of 244,107 tonnes.

The increases in Europe’s caustic soda stocks have been largely driven by softening demand, market players said on Tuesday.

"Demand has decreased," a producer said.

“There is plenty of material available in Europe,” a buyer said.

Current market fundamentals are likely to hinder producers’ efforts to implement increases in second-quarter contract prices.

Major chlor-alkali producer INEOS ChlorVinyls and US-based Dow Chemical have announced a €40/dry metric tonne (dmt) ($53/dmt) increase in caustic soda prices, with immediate effect and as contracts allow, although most rises are due to be implemented on 1 April because the majority of Europe's caustic soda contracts are settled on a quarterly basis.

“It is unlikely that prices will increase in the second quarter, unless there is a radical change in the market,” a producer said.

“Vinyl producers have achieved more than anyone would dream of in such economic circumstances, so now the pressure [for caustic soda producers] is on sales volumes, not on prices," it added.

Since almost all chlorine and caustic soda are co-produced simultaneously through the electrolysis of salt, chlor-alkali manufacturers need to price both chemicals according to market fundamentals, as they have to be sold in the same proportion in which they are produced.

Therefore, a downtrend in the price of chlorine derivatives is usually accompanied by price hikes in caustic soda, and vice versa.

Whereas PVC contract prices hit a 20-month record hike in February on market tightness - with further increases expected for March - caustic soda spot prices have decreased in the same period on softer demand and greater availability.

($1 = €0.76)

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By: Abache Abreu
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