OUTLOOK '13: US chlor-alkali picture still muddied

07 January 2013 23:12  [Source: ICIS news]

HOUSTON (ICIS)--After a lacklustre 2012, in which US chlor-alkali producers struggled to push through price increases, many are expecting market conditions to improve in 2013.

The US chlor-alkali industry faced daunting headwinds in 2012 from the still-lagging US economic recovery to continuing troubles in the eurozone and slowing growth in China. By year’s end, though, the US recovery seemed on surer footing, with employment figures and consumer sentiment rising.

That was tempered, however, by concerns among businesses and households alike that President Barack Obama and Congress would fail to find an agreement to resolve the so-called fiscal cliff, an automatic set of tax hikes and spending cuts, which could lead to a new recession.

The US chlor-alkali market is intrinsically tied to the US homebuilding sector, which consumes polyvinyl chloride (PVC), a chlorine derivative.

In 2012, homebuilding showed increased strength following its multi-year downturn. Overall, the general trend in the latter part of the year showed increased housing starts and renewed confidence among homebuilders for 2013. In late November, the National Association of Home Builders (NAHB) said its housing market index jumped by 5 points in November from October to a reading of 46.

That was the seventh consecutive monthly gain in the confidence gauge, and the highest mark seen since May 2006, just before the housing market began to collapse.

US PVC producers said they expect that trend to continue into 2013, particularly when the homebuilding season begins in earnest in the second quarter. While prices may not increase in January, increased demand (including from rebuilding efforts in the northeast in the aftermath of Hurricane Sandy) as well as rising feedstock costs will likely put pressure on PVC prices, one producer said.

US PVC contract prices for December were expected to roll over from November, and only one producer, Georgia Gulf, has proposed a price increase for January, at 3 cents/lb ($66/tonne, €50/tonne). However, resistance from buyers and the failure of other producers to follow Georgia Gulf's announcement might lead the company to rescind the initiative, according to market sources.

But buyers were expected to continue meeting price initiatives with resistance, according to sources.

Spot and export prices for PVC rose in the final weeks of 2012 on the back of limited availability because of a set of planned outages for maintenance and unplanned outages among several producers on the US Gulf coast. It was unclear whether that trend would continue into January.

Operating rates for US chlor-alkali producers remained in the doldrums through most of 2012 after a strong start. After dropping as low as 74% in May and rising as high as 88% in July, they remained in the mid-to-low 80s through the third quarter.

As demand for chlorine derivatives such as PVC and hydrochloric acid (HCl) increases, production of chlorine and caustic soda increases. But the outlook for caustic soda is a bit murkier.

In 2012, producers struggled to fully implement a series of price increases for caustic soda. They said demand remained high across nearly all consuming segments and that supply was often tight.

Buyers, on the other hand, said demand was waning, particular in the alumina sector, and often challenged producers’ statements about supply.

In the waning months of 2012, the supply picture was further muddied by problems moving product by rail and barge in the northeast in the wake of Hurricane Sandy. That was further exacerbated by problems shipping caustic soda along the Mississippi river, which is seeing near-record low water levels.

Several producers responded to these factors by announcing varying price increase initiatives. But the prospects for those were unclear in the final weeks of the year.

($1 = €0.76)

Follow Ken Fountain (@ICIS_Ken)  on Twitter

By: Ken Fountain

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