Inorganics: HCl supply tightens on high fracking demand

30 April 2012 00:00  [Source: ICB]

While prices for US hydrochloric acid (HCl) have stabilized since their climb in the second half of 2011, market observers expect prices to rise through the first half of 2012. Higher demand from the oil and gas industry combined with decreasing HCl output from lower isocyanates production, where HCl is a by-product, are likely to push prices higher.

US HCl producer Olin noted in its fourth-quarter earnings call in January that HCl demand was up by 15% year on year in 2011 because of oil and gas exploration.

"Twenty-five percent of the HCl market supply is burner grade, which is used to dissolve the sandstone that is used for fracking," said Frank Mitsch, analyst at US-based Wells Fargo Securities, in an April 9 report covering Olin. "Demand has now outstripped supply, causing the premium for HCl over chlorine to rise from $30-50/short ton [€23-38/short ton] to over $100/ton."

Reduced manufacturing in the isocyanates and fluorocarbon industry because of the overall slowdown in economic growth also has cut HCl output, according to RX360, an international pharmaceutical supply chain consortium based in Washington, DC.

US HCI graphOver 90% of HCl produced in the US is a by-product of a chlorination reaction, and most of it comes from the production of methyl di-p-phenylene isocyanate (MDI) and toluene di-isocyanate (TDI), according to RX360.

"Right now, there is excess TDI/MDI feedstock to the market, so manufacturing has slowed, thus reducing the co-product technical grade HCl on the open market," noted Charlotte Hicks of US-based specialty chemical distributor Doe & Ingalls, on a company blog posting on March 30.

Hicks reported potential further tightening of HCl supply with US-based Dow Chemical announcing force majeure at its two MDI facilities in Texas in March because of a mechanical failure, as well as the company planning to close a TDI plant in Camacari, Brazil.

US HCl contract prices this year have stabilized at $200-280/short ton, ex-works, US Gulf, as assessed by ICIS. Prices in October 2011 were at $140-180/ton.

For now, supply and demand are fairly balanced, and there is no significant impact on prices, a producer said. He said demand will rise in late April and beyond, especially from the oil and natural gas production sector.

By: Doris de Guzman
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