FocusAsia caustic soda to stay in tight range on buy-sell discord

01 August 2012 07:27  [Source: ICIS news]

By Feliana Widjaja

caustic soda SINGAPORE (ICIS)--Asia’s caustic soda prices are unlikely to experience substantial fluctuations in the near term as firm offers from suppliers were met with stiff resistance from buyers, industry sources said on Wednesday.

Spot prices were last assessed by ICIS at $470-480/dry metric tonne (dmt) (€381-389/tonne) FOB (free on board) NE (northeast) Asia on 27 July, hanging at the same level for four weeks running.

Caustic soda prices have gone up by $60/dmt from the year’s low of $410-420/dmt FOB NE Asia on 16 March, mainly driven by plunging co-product chlorine prices, market sources said.

Chlor-alkali producers sought higher caustic soda prices from mid-March onwards to protect their margins

They also resorted to curtailing run rates at plants to balance chlorine production amid persistently low prices of the material, and dismal conditions in the chlorine-derivatives market, industry sources said.

A chlor-alkali plant makes 1.1 tonnes of caustic soda for every tonne of chlorine produced.

Some downstream plants that consumer chlorine were said to be having turnarounds or operating at lower rates during the current summer season, which further dampened chlorine demand, a China-based chlor-alkali producer said.

“In some regions, the chlorine value is negative and some producers even have to pay their chlorine customers to take their cargoes as they have to find an outlet for chlorine,” the producer said.

Chlor-alkali plants in China are operating at reduced capacity, with the average run rate estimated at around 60%, with some facilities running at 50% and below, according to a China-based trader.

“We are not likely to offer spot cargoes for the next few months as we have very limited supply. Our operating rate is even lower than 50%. We don’t have enough availability and have to delay or cancel some contract shipments,” another producer in China said.

Spot cargo availability in the market is limited and Chinese producers are refusing to export material at lower prices since they could derive better netbacks from the local market.

“Domestic prices are at an equivalent of $480-485/dmt EXWH [ex-warehouse] so it makes no sense to export at low prices,” a producer in east China said.

With no upside for chlorine values seen in the horizon, chlor-alkali operators in China are unlikely to raise their operating rates, keeping supply tight, thus limiting the downside for caustic soda prices, market sources said.

Spot cargo availability from Japan is also restricted, while caustic soda producers in Taiwan and Korea are not exporting cargoes to focus on supplying to their respective domestic markets and on fulfilling their contractual commitments.

“Our first priority is to fulfil domestic demand and focus on contractual shipments,” a caustic soda producer in Taiwan said.

Consequently, suppliers are adamant on upholding caustic soda prices at high levels.

“I am confident that [the] caustic soda market will be strong because there is no cargo and the only thing that will lower caustic soda price is improving chlorine,” a China-based trader said.

“Market prices [will] have to be stable, if not up” for September shipments, the trader said.

Chlor-alkali producers in northeast Asia were said to be having a difficult time because of negative margin.

“Demand in the vinyls sector is extremely low and considering the total cost and selling price, chlor-alkali producers are having a challenging time,” a Korea-based producer said.

“In Asia, chlor-alkali producers are suffering because of [a] very poor chlorine [market],” the China-based trader said.

Nonetheless, buyers felt that caustic soda prices have reached a lofty level, and are reluctant to accept higher prices in view of the general softening in downstream demand, owing to the lacklustre macroeconomic outlook.

“Demand is also expected to slow down during the Ramadan period in August,” a buyer in Malaysia said.

Ramadan refers to the month-long Muslim fasting month that began on 20 July.

Buyers in southeast Asia that have comfortable inventory levels are also not in a hurry to secure parcels, market sources said.

“I have been holding back because price is high. If everybody’s not buying, suppliers will have to sell at lower price eventually, so I’m hoping that prices will move down a bit,” another buyer in southeast Asia said.

Thus, the caustic soda market is caught in a deadlock and the gap between buying and selling indications are hampering trades.

“Both sides are equally stubborn,” a buyer in southeast Asia commented.

“The situation is tough now. We try our best to get good margins but it’s hard to make profit at the current environment,” a China-based producer said.

($1 = €0.81)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
Request a free ICIS sample report for the latest prices and development in the Asian petrochemical markets

By: Feliana Widjaja

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