16 April 2012 00:00 [Source: ICB]
Caustic soda (sodium hydroxide) is a versatile alkali. Its main uses are in the production of pulp and paper, alumina, soap and detergents, petroleum products and chemicals.
Demand in Europe for caustic soda has steadily declined since the fourth quarter of 2011 because of feeble economic conditions in the region.
Softening demand has led to rising caustic soda stocks and greater availability. In February, inventories for the region comprising the 27 EU countries, Norway and Switzerland increased to 255,966 tonnes, 4.9% higher than January levels of 244,107 tonnes, according to Belgian industry body Euro Chlor.
Producers argue that this increase is minor and that inventories below 300,000 tonnes indicate limited supply. But caustic soda stocks have risen despite the production of co-product chlorine hitting a two-year low, meaning demand has fallen beyond supply, lengthening the market.
Supply shocks and price volatility are common in the chlor-alkali business as the co-products are driven by different fundamentals. Chlorine's main downstream markets, polyvinyl chloride (PVC) and isocyanates, are more strongly connected to the construction and housing sectors, and therefore are more exposed to economic cycles and drastic changes in gross domestic product.
Current market fundamentals are unlikely to support producers' efforts to implement increases in second-quarter contracts.
One producer said that chlor-alkali manufacturers will have to seek increases in PVC throughout the second quarter of the year if they want to offset rising ethylene costs and improve margins.
Switzerland-headquartered INEOS ChlorVinyls and US-based Dow Chemical announced a €40/dry metric tonne (dmt) ($52.6/dmt) increase, but negotiations are pointing to a rollover or small decrease, depending on the source and the region.
From mid-2011, the downtrend in the price of chlorine derivatives was accompanied by reductions in operating rates and price hikes for caustic soda.
The opposite scenario has occurred so far in 2012. While PVC contract prices have experienced two consecutive hikes in February and March on outage-related market tightness - with further increases expected for April - caustic soda spot prices have decreased on softer demand and greater availability.
Nearly all caustic soda is generated by the electrolysis of sodium chloride solution using mercury, diaphragm or membrane cells. For every tonne of chlorine, 1.1 tonnes of 100% caustic soda is generated.
Membrane technology is growing as mercury-based plants are phased out. Membrane cells operate with more concentrated brine and produce a purer and more concentrated caustic liquor. One plant in Romania uses the lime soda process, which produces lower-grade caustic soda.
Softening domestic demand and limited export opportunities will continue to be partly offset by turnarounds and supply constraints at several manufacturing sites.
In the long term, however, chlor-alkali players are concerned about rising production costs and global overcapacity.
There are few export opportunities to offset declining domestic demand, as well as regular imports from the Middle East increasing availability in the Mediterranean market.
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