Inorganics: Chlor-alkali players cautious on 2012 demand outlook

16 April 2012 00:00  [Source: ICB]

Rex Features

 © Rex Features

Weak demand is causing alumina produers to reduce production

US chlor-alkali players are warily eyeing the rest of 2012 with concerns about costs and downstream demand prevalent even as the economic picture begins to brighten.

During the 2012 International Petrochemical Conference in San Antonio, Texas, US, hosted by the American Fuel & Petrochemical Manufacturers (AFPM) in April, chlor-alkali players noted a continuing murky outlook for polyvinyl chloride (PVC) - chlorine's largest end market - despite strong export demand for US PVC, especially to Latin America.

PVC is heavily tied to the housing industry. In late March, the National Association of Realtors (NAR) reported that US pending home sales fell by 0.5% in February from January, but that residential property sales were still ahead of the same period a year ago.

The NAR reported that US sales of existing homes rose by more than 4% in January, but sales of new single-family homes fell in both January and February. Construction of new one-family homes fell sharply in February, according to the US Commerce Department.

Several PVC producers announced a 3 cent/lb ($66.14/tonne, €50.51/tonne) hike for March, and were meeting some resistance from consumers. However, market participants said an explosion and fire at US producer Westlake's vinyl chloride monomer (VCM) facility in Geismar, Louisiana, would give support for the increases. VCM is a precursor to PVC, and the Westlake facility is an integrated one. Westlake declared force majeure on PVC following the fire.

CHLORINE PRICES RISE

There was an industry nomination of a $40/short ton chlorine price hike in the first quarter which has yet to be implemented, says Frank Mitsch, analyst at US investment firm Wells Fargo Securities.

"This was the first chlorine price hike nominated in over a year. Further down the chlorine chain, Japan's Tosoh has also decided to delay the start-up of a VCM facility to the end of April, which may impact global PVC supply for part of the second quarter," Mitsch says.

The first quarter US chlorine contract price in 2012 is unchanged at $275-310/ton compared to the fourth quarter of 2011, as assessed by ICIS on
April 6.

For chlorine co-product caustic soda, the picture is even more muddled. Producers say they see robust demand, but large consumers such as in the alumina industry say their demand is weak.

US-based aluminum producer Alcoa announced in April that it is reducing annual alumina production capacity by 390,000 tonnes. The move is to align production with smelter curtailments of 531,000 tonnes that the company announced in January at US plants in Tennessee and Texas, and European plants in Italy and Spain.

Other alumina producers have announced similar moves based on what they say is weakening demand for their product.

At the AFPM event, a European alumina producer also noted expectations of downward pressure for caustic soda prices given the pick-up in PVC demand from a seasonal winter lull. Increased output of chlorine would in turn boost the supply of caustic soda. For 1 tonne of chlorine produced, 1.1 tonnes of caustic soda is produced as a co-product.

The trade group US Chlorine Institute reported that February's chlor-alkali operating rate was 87%, slightly higher than the 86% rate in January. Those rates are lower than the 89% and 92% from the same periods, respectively, a year before.

The price differential in the US Gulf caustic soda market between distributors and the lower-priced alumina segment should widen in coming months as supply lengthens, a European alumina producer said. "While that should put downward pressure on caustic soda prices in general, it would in particular prompt relatively lower offers from US Gulf producers to overseas buyers in the alumina segment," the producer said.

The producer added that caustic soda sellers are willing to lower their offers to them - relative to distributors - as a means of balancing supply and demand in the domestic US market, recognizing the larger quantities that alumina segment buyers take.

Alumina segment buyers are currently paying around $380/DMT (dry metric tonne) (€285/DMT) for FOB (free on board) US Gulf material, the source said. That compares with a range of $420-445/DMT currently assessed for barge-sized parcels, which are representative of the distributor market. The gap has been as wide as $100 or more in previous years.

CAUSTIC IN LIMBO

In late February and early March, several US caustic soda producers announced increases of $45/dry short ton (dst), effective April 1, citing healthy demand. But several consumers have rejected that reasoning, claiming the initiatives are an attempt to keep prices from falling. Contract prices for liquid caustic soda in March were assessed by ICIS at $470-540 dst.

In the midst of the AFPM meeting, US producer Dow Chemical announced another price hike of $50/dst, effective May 1 or as contracts allow. A Dow representative at the event cited strong demand from all of its consumer segments and that it foresees tightening chlorine production as a reason for the initiative.

"After a period of destocking in the fourth quarter of 2011 and the early part of 2012, the company posted its strongest March ever in sales volume of caustic soda. With several planned chlor-alkali outages coming up in the second quarter, supply will become tighter," the Dow representative said.

The announcement comes as a shock to several buyers given that Dow is still in the midst of implementing its $45/dst initiative announced in February.

One market player said that it is possible that Dow's announcement might be based on internal factors that are hampering its own production of chlorine and caustic. The initiative might be meant as a signal by Dow that its availability will be reduced in the second quarter of the year.

  • Additional reporting by Stephen Burns in Houston

Author: Ken Fountain and Doris de Guzman



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