Inorganics: Asia caustic soda prices firm on tightening supply

28 May 2012 00:00  [Source: ICB]

Asia's caustic soda prices are expected to remain robust in the near term, supported by tightening supply and persistently low prices of co-product chlorine.

In chlor-alkali processing, 1.1 tonne of caustic soda is produced for every tonne of chlorine.

Several chlor-alkali producers in China are operating their plants at reduced rates to balance chlorine production in the midst of low chlorine prices and the dismal conditions in the chlorine derivatives market. The reduced operating rates are leading to tight availability of caustic soda cargoes for the spot market.

"We have very limited cargo to export because of our low operating rate of around 50%," a chlor-alkali producer in China said.

The average operating rate of caustic soda plants in China is estimated to be around 60-70% at the moment, according to a trader based in China.

Chinese chlor-alkali producers are expected to maintain their productions at lower levels as there is no anticipated uptick in the chlorine derivatives segment, market sources said.

Northeast (NE) Asia caustic soda spot prices as of May 18 were assessed by ICIS at $460-470/dry metric tonne (dmt) (€360-368/dmt) FOB (free on board), hitting their highest level for 2012, after rising from $410-420/dmt FOB NE Asia in mid-March.

In China, domestic chlorine spot prices in Shandong and Jiangsu were assessed at yuan (CNY) 50-150/tonne ($7.91-23.70/tonne) EXWH (ex-warehouse) and CNY100-200/tonne EXWH, respectively, according to May 17 data from ICIS Chemease, an ICIS service in China.

Asia caustic soda China chlorine

"Buying chlorine now is cheaper than producing it," a China-based trader said. Demand from downstream markets such as polyvinyl chloride (PVC), methylene chloride, chloroform and epichlorohydrin is down, the trader added.

As a result, chlor-alkali producers raised their caustic soda offers to fetch higher prices to protect their margins, market sources said.

"We don't see chances of caustic soda prices going down with chlorine prices still low, and supply limited because of low operating rates," another trader said.

In addition to the reduced supply from China, caustic soda producers in Taiwan and South Korea are unlikely to participate actively in the spot market in the near future as they are focusing on supplies to their respective domestic markets 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.

In Japan, producers are not in a position to offer spot materials amid ongoing and upcoming plant turnarounds at several chlor-alkali facilities that will last until mid-June.

"We may consider exporting on a spot basis after our maintenance in the second half of June," a producer in Japan said.

Northeast Asia is a major exporter of caustic soda and has an estimated capacity of close to 39m dmt, which is almost half of the global capacity, industry sources said.

China is the largest caustic soda producer globally, with capacity that reached 32m dmt in 2011, according to ICIS Chemease.

BUYERS UNCONVINCED

Despite the bullish sentiment among suppliers, most buyers believe high caustic soda prices are not sustainable as there are no firm fundamentals supporting prices.

"Caustic soda demand is not great so I feel that the high prices are artificial," a buyer in Southeast Asia said.

Another buyer in Southeast Asia noted that with no fundamental shift in demand, caustic soda prices will go down eventually when buyers start cutting back on their own production because they cannot afford to buy caustic at such high prices.

  • Additional reporting by Sikee Shi in Shanghai and Doris de Guzman in New York

By: Feliana Widjaja



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