Brazil caustic soda demand softens on weakening economy

Focus article by Ron Coifman

HOUSTON (ICIS)–Caustic soda demand is soft in Brazil amid ample supply, in line with the country’s weakening economy, market sources said.

Brazil consumed 616,195 dry metric tonnes (dmt) of liquid caustic soda from January through March 2015, down by 1.7% from the 626,748 dmt consumed during the same period in 2014, according to data released this week by the country’s association of chlor-alkali industries, Abiclor, as the country’s economic outlook deteriorates.

Brazil’s domestic production of liquid caustic soda between January and March of 2015 was 346,311 dmt, 1.6% lower than the 351,901 dmt produced during the same period in 2014, Abiclor said.

Liquid caustic soda imports from January through March 2015 were 275,034 dmt, down by 1.4% from 279,038 dmt imported in 2014. The US was Brazil’s principal source with 256,646 dmt exported there through March this year, corresponding to 93% share of imports into Brazil.

Major markets consuming liquid caustic soda in Brazil in 2015 are paper and cellulose with 88,503 dmt, chemical/petrochemical with 55,788 dmt, soaps and detergents with 25,207 dmt, aluminium with 15,044 dmt, and metallurgy with 18,764 dmt.

Caustic soda supply in Brazil is adequate to meet steady demand, sources said.

Meanwhile, Brazil’s economic outlook continues to darken, with analysts now expecting GDP to shrink by 1.20% in 2015, versus 1.18% from the previous week, according to economists surveyed by the Central Bank of Brazil.

Each week the central bank surveys a group of economists about their forecasts on Brazil.

For much of the year, they have been lowering their outlook.

The forecast for inflation also continues to worsen, with economists expecting a 2015 rate of 8.29%, up from their earlier forecast of 8.26% a week ago.

The rate is well above the central bank’s upper limit of 6.5%.

Brazil’s weakening currency has been pushing inflation higher. The economists expect the exchange rate to end 2015 at reais (R) 3.20 to the US dollar, the same as their earlier forecast.

The Brazilian real is much weaker than its level in 2011, when it stood below R1.60.

The bank has attempted to fight inflation by raising the key Selic interest rate. The rate now stands at 13.25%.

By the end of the year, the economists expect the central bank to increase the rate by 25 more basis points to 13.50%, unchanged from their forecast a week ago.

For 2016, economists expect the economy will grow by 1.00%, unchanged from their forecast a week earlier.

They expect inflation will be 5.51%, down from 5.60% a week earlier. The exchange rate should end the year at R3.30, unchanged from a week earlier.

Additionally, industry participants worry about the ongoing drought, sources said. Adequate rains in Brazil were gauged as a relief in February and March. Although the rains slowed in April, they were still deemed as satisfactory, the sources added.

Concerns about the drought and potential power shortages are still present because the dry season has begun, and rains are not expected to resume significantly until October. The drought and its potential effect on energy supply are considered risks to production, but are not currently disrupting the market, according to the sources.

Caustic soda producers in Brazil are Braskem, Carbocloro and Dow Brasil.

Additional reporting by Al Greenwood