Sodium Chlorate Faces High Energy Costs

26 March 2001 00:00  [Source: ICB Americas]

By Eleanor Van Savage

Although a recent strong performer in the bleaching chemicals market, sodium chlorate is showing some signs of slowing as it faces a downturn in the pulp and paper industry and the completion of the conversion to elemental chlorine-free (ECF) bleaching in the US. Operating rates are still strong and are generally in the range of 92 to 95 percent, although in some cases, rates are as low as 88 to 90 percent. Also, rising energy costs are squeezing margins.

Sodium chlorate prices have gone up steadily over the last 12 months, with soaring electricity costs being a major contributing factor. While pricing has increased along with demand, margins are being impacted by high production costs. "Pricing in this market has been growing as the demand has increased; however, the suppliers are not feeling the good results one might expect as the margins continue to be squeezed by the high cost of electricity and fuel for freight costs," says Paul S. Timmons, vice-president, pulp and paper, Sterling Pulp Chemicals. Prices are not expected to fall as the pulp cycle slows, as they have in the past, due to the high energy costs, he says.

Since March 2000, sodium chlorate producers announced an average of three to four increases totaling $85 to $100. Eka Chemicals Inc. announced four increases over the last 12 months ranging from $15 to $25 each, for a total of $80 per short ton. Nexen Chemicals (formerly CXY Chemicals) also made at least four increase announcements during that time period, to total about $100 per short ton, according to the company. This month, Atofina Chemicals Inc. increased prices of its product, f.o.b. Portland, Ore., to $525, per dry short ton, crystal or solution grades.

Spot prices are currently in the range of $400 to $450 per ton. "Most contract prices have gone up over the last year, but maybe not as much as has been announced. Spot prices are over $400 per ton, and I have some small accounts at over $500 per ton," says Paul Britt, director, sales and marketing for Huron Tech Corporation.

Energy costs are playing an important role in current pricing trends. Rising electricity costs are even more of a concern as summer nears when a lack of sufficient electricity may lead to sodium chlorate product shortages and higher prices. "Electricity makes up 60 to 70 percent of the variable cost of the product. Therefore, producers usually enter contracts with energy suppliers, which permit them to interrupt the production process in times of energy shortages, such as heating needs in Canada in the winter and air conditioning needs in the summer in the US. Accordingly, there are often times the nameplate capacity of sodium chlorate plants is higher than actual capacity," says Mr. Timmons.

Sodium chlorate producers face some softening in demand due to the downturn in the pulp and paper industry, but continue to see demand improvements relating to the implementation of Environmental Protection Agency's cluster rules and the conversion to ECF bleaching, which were finalized two years ago and which will take effect next month.

"Overall, we expect the supply of sodium chlorate to be very tight over the next 18 months or so, and if the pulp industry picks up operating rates from the mid-80s to the mid-90s, like we saw last year, there will be shortages in the summer and winter months," Mr. Timmons says. However, he adds that lower operating rates of the pulp mills will impact the sodium chlorate market. "We have seen since the last quarter of 2000 a series of announcements from our customers indicating that they are curtailing operations due to high pulp inventories. This has the obvious effect of reducing chlorate demand."

While there has been "a softening in demand and a downturn in the pulp industry, which began in the first quarter of this year, it has been offset by ECF. There's been a push and a pull," says Doug Drei-singer, vice-president, business operations, Nexen Chemicals.

Conversion to ECF bleaching has been the major demand driver for sodium chlorate since the rules were finalized two years ago. In North America, ECF production increased by 10 percent in 2000 to represent over 80 percent of bleached pulp production, according to the Alliance for Environmental Technology. In the US, ECF production grew by 15 percent in 2000 to more than 20 million tons, 75 percent of US bleached pulp production. ECF pulp production grew to 48.5 million tons worldwide in 1999, a 15 percent increase.

Following the finalization of EPA's cluster rules to ECF bleaching in April 1998, sodium chlorate consumption in the US steadily increased. Sodium chlorate used as a bleaching chemical in the pulp and paper market in the US was 1.21 million in 1997, 1.24 million in 1998, 1.26 million in 1999 and 1.39 million in 2000, according to the American Forest & Paper Association. Sodium chlorate capacity in North America is estimated at 2 million tons; world capacity is about 3 million tons. Pulp and paper makes accounts for roughly 95 percent of the market for sodium chlorate.

Over the last two years, the conversion to ECF bleaching was a key demand driver in the sodium chlorate market. However, with the compliance date now being reached, the sodium chlorate industry will stabilize and perhaps begin a slow decline over the near term and beyond, producers and analysts say.

"Going forward, we don't expect to see the same growth we did over the last 10 years. We expect the industry to stabilize over the next one to five years," says Nexen's Mr. Dreisinger.

Meanwhile, producers are proceeding with expansion plans. Nexen has announced a 70,000 metric-ton-per-year expansion of its Brandon, Manitoba, Canada, plant, expected to be operational during the first half of 2002. However, in light of the mature, contracting North American market, Nexen says it does not intend to use the expansion to add effective North American capacity. "We are continuously expanding at Brandon, and when we're done with the latest one, we'll have 10 percent of total North American capacity there," says Mr. Dreisinger. Nexen also plans to double its capacity in Brazil, to 60,000 metric tons per year, which will be onstream in May 2002.

Sterling Chemicals intends to build a $55 million, 60,000 metric ton-per-year sodium chlorate plant, to be situated in New South Wales, Australia. Construction will begin after financial and other negotiations have been completed, with start-up expected for March 2003. In explaining the investment, Mr. Timmons says, "We expect to see offshore growth in pulp production in South America and Asia, as well as a trend in those areas to follow the US lead in the cluster rule, so producers will plan to invest capital in those areas rather than in North America."

Producers are looking to an uptick in global pulp and paper demand and other applications to help drive growth. During the late second half of 2001, the pulp and paper industry will most likely rebound, and the global demand for pulp will pick up, says Gerhard Scherer, manager of business intelligence, Eka Chemicals. Mr. Scherer also notes that other areas showing growth for sodium chlorate are in the etching of printed circuit boards and for water treatment, particularly the industrial and municipal water treatment market. "This growth comes in the form of sodium chlorite, which is made from chlorate, and a new technology based on Purate, a proprietary chlorate blend marketed by Eka through distributors," he says.

CAUSTIC SODA--Old World Industries will enact a $50 per short ton increase on all liquid caustic soda products from current pricing, not to exceed the revised list prices, effective April 1.

CORRECTION--Dow Chemical Com-pany's only planned expansions for chloralkali at present are to add 120,000 tons of chloralkali capacity, a 15 percent increase, at its Stade, Germany, facility by late 2002. The other capacity expansions mentioned in a March 5 story pertain to the chloralkali industry as a whole.

INDUSTRIAL GASES--Effective April 16, or as contracts permit, Air Products and Chemicals Inc. will increase pricing on industrial gases, as follows: liquid and bulk oxygen and nitrogen, by 10 percent; argon by 20 percent; helium by 15 percent; and hydrogen by 20 percent.

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