FocusUS chlor-alkali 2012 outlook hinges on homebuilding

21 September 2012 21:31  [Source: ICIS news]

By Ken Fountain

HOUSTON (ICIS)--There have been encouraging signs in the US economy, including in the critical homebuilding sector, but the outlook for the remainder of 2012 in the chlor-alkali industry remains fuzzy, according to market participants and observers.

Manufacturers of chlorine derivatives – including key end-product polyvinyl chloride (PVC) – and caustic soda, a by-product of the electrolysis process, have had an uneasy time for most of this year.

Early in 2012, as the financial crisis in the eurozone continued and China’s economic growth began to slow, the prospects for the still-recovering US economy began to dim. Closely-watched unemployment figures and jobless claims from the US government took on added importance, especially as campaign fodder in the 6 November presidential election.

For chlor-alkali producers, the more salient metrics are the figures for construction, especially new homebuilding. PVC, used widely in piping, siding and other construction applications, is tied to that benchmark sector for the US and Canadian economies. And there, the signals are still mixed.

The US Commerce Department said on 19 September that new home construction rose by 2.3% in August, reversing a 1.1% decline in July.

The department said housing starts in August were at a seasonably adjusted rate of 750,000 units, an improvement over the July figure of 733,000, downwardly revised from the original July figure of 746,000.

Of perhaps greater interest, however, the figures showed that August construction of new single-family homes, seen as the core sector of the homebuilding sector, was at 535,000 units on a seasonably adjusted annual basis, nearly 27% higher than the pace of activity seen in the same month in 2011. To many industry watchers, that indicates that the long-stagnant homebuilding industry may have turned the corner.

However, the department reported, the number of building permits issued in August fell by 1% from July, after a sharp 6.8% gain in July, indicating home construction may still be muddling through.

A large Canadian buyer of PVC for homebuilding applications said that construction in that country, after a relatively strong summer, began to wane after Labour Day. That seemed to indicate a repeat of 2011, when construction slowed between Labour Day and Canada’s Thanksgiving holiday, the buyer said.

But, the buyer said, demand for PVC – and therefore, its predecessor chemicals ethylene dichloride (EDC) and vinyl chloride monomer (VCM) – may begin to pick up again in the fourth quarter before the typical year-end slowdown, then see a rebound in early 2013.

US PVC producers were in the midst of trying to push through a set of new price initiatives in the third quarter of between 3-5 cents/lb ($66-110/tonne, €51-85/tonne). PVC producers cited the rising cost in recent weeks of primary feedstock ethylene and increased demand, especially in the export market, as well as planned outages in the third quarter that will constrict supply.

Pipe-grade PVC was assessed by ICIS at 51-56 cents/lb, and general purpose PVC at 53-58 cents/lb as of 21 September.

For US caustic soda, the picture also is mixed. Suppliers of caustic soda, which is manufactured as a by-product of chlorine, say that demand remains healthy both in the domestic and export markets, particularly for Latin American and Australia.

Several caustic soda producers were also trying to implement a set of price increases, of $35/dst (dry short ton) (€30/tonne) and $75/dst.

They, likewise, cite healthy demand and snug supply.

But many buyers, including large ones from the alumina industry, dispute both notions. Their own demand is soft, they say, and chlor-alkali operating rates are relatively high for the time of year.

Caustic soda contracts were assessed at $500-570/dst (dry short ton) as of 21 September.

In its latest monthly production report, The Chlorine Institute, a trade group, said US chlor-alkali production in August reached a level of 86%, down 2 percentage points from July. The industry produced 997,394 tons (905,000 tonnes) of chlorine and 1,037,601 tons of caustic soda, the institute said.

The 86% figure is also two percentage points below the same month in 2011.

Ben Zingman, a communications consultant for The Chlorine Institute, said that while the group does not make projections for the industry, it is a well-established fact that as the housing industry goes, so will the chlor-alkali sector.

Additional reporting by Joe Kamalick

($1 = €0.77)

By: Ken Fountain

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