Price and market trends: Asia caustic soda prices likely to remain weak

30 August 2013 09:43  [Source: ICB]

Producers - suffering negative margins - are forced to cut output on weak demand and high power prices

Spot caustic soda prices in Asia are likely to stay weak in the near term as demand has remained sluggish, industry sources said.

The market has ample supply of caustic soda, prompting some producers, particularly those in China, to reduce run rates at their facilities to allay the downward pressure on prices, they said.

On 16 August, caustic soda prices were assessed at $317.50/dry metric tonnes (dmt) (€238/tonne) FOB (free on board) NE (northeast) Asia, down by more than 7% from early June, according to ICIS data.

OUTPUT REDUCTION
Some producers are being forced to reduce output on production costs concerns. Power costs tend to surge during the summer season (June-September) in northeast Asia, market sources said.

Furthermore, with chlorine prices in Shandong, China, plunging to as low as yuan (CNY) 50-200/tonne EXWH during the week ended 1 August and remaining at that level as of 15 August, most caustic soda producers in China said they were suffering from negative margins as both caustic soda and chlorine prices were too low.

Caustic soda is a co-product of chlorine.

Attempts to nudge up caustic soda prices by cutting on supply, however, are not working so far since demand is too weak, according to market participants.

"They [sellers] can say supply is tight, but downstream demand is really weak, so tight supply or not, we don't have to buy a lot," a southeast Asia-based caustic soda buyer said.

In southeast Asia, the situation is equally pessimistic as in the northeastern parts, if not worse, market players said.

Since the beginning of the year, buying interest in caustic soda has been lacklustre from downstream alumina, pulp and paper sectors.

Market activity was further weighed down by the onset of the monsoon season in some parts of southeast Asia, as well as by the recent Eid holidays, which marked the end of the Muslim fasting month of Ramadan, market sources said. Ramadan is observed in most parts of southeast Asia.

The most recent caustic soda deal done in southeast Asia was done at around $365/dmt CFR (cost and freight) for an Indonesian-origin cargo, when a number of northeast Asian sellers were looking at $380/dmt. Most southeast Asian buyers are now keen on discussing September-loading cargoes at similar prices, or even lower, market sources said.

Northeast Asian producers, on the other hand, are keen to maintain their offers at $330/dmt FOB NE Asia, taking into account their production costs and a need to maintain good margins.

Bids and buying ideas at $365/tonne CFR SE Asia could not be matched by some northeast Asian producers as these do not provide them with freight advantage to compete with caustic soda makers based in the southeastern part of the region.

Ocean freight costs from northeast Asia to southeast Asia are around $50-60/dmt on average, depending on the origin and destination, according to regional traders.

GLOBAL MARKET QUIET
"The global market is very, very quiet. We initially thought that we could sell to further destinations such as the US when southeast Asia's demand is weak, but it turns out that everywhere is seeing poor demand now," said a northeast Asian trader.

A northeast Asia producer echoed the same sentiment, adding that it is focusing mainly on fulfilling contractual volumes for now instead of trying to sell spot volumes.

Most industry players do not anticipate significant improvement in weak conditions in the Asian caustic soda market anytime soon.


By: Jasmine Khoo
+65 6780 4359



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