Alumina travails dim caustic soda

Correction: In the ICIS story headlined “Alumina travails dim caustic soda” dated 28 August 2015, the change in liquid caustic soda exports has been corrected. Please read “… exports are up 9% …” in the 15th paragraph instead of “… exports are down by about 7% …”  

HOUSTON (ICIS)–At the start of 2015, those in the alumina industry had a right to feel like things were brightening for the lightweight metal in global markets.

The global industry had been grinding its way through a years-built glut of supply that had depressed prices and forced alumina producers in the West to close dozens of operations. While the excess inventory was being worked down, prices had moved up.

Demand for US caustic soda for alumina refining was brightening.

But that was then.

Today, a surge in alumina production in China has surplus material sloshing through global markets, sinking prices and adding to the oversupply that has weighed on the market for the past several years.

Prices for alumina are at six-year lows, down 26% from a year ago and alumina companies are smarting. Several have announced the shuttering of additional alumina smelters and refineries.

The stock for Alcoa Aluminum on Wednesday was at $8.19 in afternoon trading, half of the shares’ value in February.

“If alumina production keeps shrinking, as pulp and paper (consumption) has, it’s going to leave the US long on (caustic soda) supply,” a US distributor of caustic soda said.   

Just this week, the largest aluminium producer in Vedanta, India, said it cut production in half at its 1m tonnes/year alumina refinery in eastern India in the fourth quarter.

In a press release, the company cited falling prices, which are likely to continue trending lower in coming months, and a lack of readily available bauxite.

The downdraft from alumina may already being making waves in US caustic soda markets where exports to alumina producers, to destinations as diverse as Australia and Ireland to South America and the Mediterranean basin.

Some estimates put US caustic exports to alumina producers in July at 80,000 dry metric tonnes (dmt) as US caustic prices lulled at a four-year low.

Alumina production consumes an estimated 15% of US caustic soda production and comprises the bulk of US caustic soda exports to buyers in the alumina industry.

In 2014, US caustic soda producers sold 2.25m tonnes in export markets, out of about 13.5m tonnes of annual production, according to the Chlorine Institute and the US International Trade Comission.

So far this year, US caustic soda exports are up 9% for the first half of the year on the lowest prices in more than four years. Producers and traders say that large volumes were shipped to alumina producers in July and August.

Still, caustic production, driven by demand from the construction segment for co-product chlorine to make polyvinyl chloride (PVC) building materials, was at a seven-year high in July, according to figures released this week by the Chlorine Institute.

“The problem is going to show up in the domestic supply,” the US caustic soda distributor said.

That is why US chlor-alkali sellers are closely watching problems in the alumina industry.

Lower production costs in China have served as an incentive for alumina producers there to lift output to maximise margins. But, even as production booms, demand in China has sagged, sending a new wave of exports into Asian markets and elsewhere and flooding global markets.

Bobbing in the backwash, the US alumina industry is reverting to cost and capacity-cutting measures.

At the beginning of the second quarter, Alcoa curtailed 443,000 tonnes of alumina refining capacity at its Suralco partnership in Suriname and has said it will curtail 74,000 tonnes of smelting capacity at its Sao Luis (Alumar) facility in Brazil.

In April, Alcoa of Australia said it will shut its Anglesea coal mine and power station after more than 46 years of operation, with the closure expected to impose a one-off charge of up to $35m.

On June 30, the company said it would permanently close its Poços de Caldas primary aluminum smelter in Brazil effective immediately, retiring 96,000 tonnes/year of production capacity.

In July, the company streamlined its downstream divisions to focus on aerospace and higher-value applications, combining its construction and transportation segments into a new unit.

The production cutbacks could affect 14 percent of Alcoa’s global smelting capacity and 16 percent of its global refining capacity. Right now, Alcoa has idled 19 percent, or 665,000 tonnes, of smelting capacity and 7 percent, or 1.2m tonnes, of its refining capacity.

“This realignment optimizes our organizational structure and expands our leadership capabilities to more rapidly capture profitable downstream growth,” Alcoa Chairman and CEO Klaus Kleinfeld said in a media release outlining the changes.

A US caustic soda supplier said that domestic demand for caustic soda for alumina remains stable, and even growing. But it is in the export markets that the dwindling demand will be felt.

The curtailment in Brazil exacerbates the slowing economic activity there already and currency devaluations that have made US products of all types more expensive in many Latin American markets.

“The developing countries is where alumina plants are built and those are the markets that are feeling the squeeze right now already,” a caustic soda exporter said.

Major US producers of caustic soda include Axiall, Bayer Corp., Dow Chemical, Formosa Plastics, Occidental Chemical, Olin, Shintech and Westlake Chemical.

Focus story by Bill Bowen