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European chloralkali output hit as growth slows, Ukraine volumes drop

Chemical companies
By Paul Hodges on 13-Aug-2014

EU Cl2 Aug14Chlorine and caustic soda are the bedrock of modern industry.  They are used in everything from laundry products to pharmaceuticals.  So changes in their business performance are a most valuable guide to what is happening in the real world in which we all live.

The chart shows the detail of developments in the European industry, starting from 2009 as the Crisis began (based on EuroChlor data).  It highlights the annual change, to avoid seasonal fluctuations:

  • The red line shows the operating rate in %, and the black line shows the level of caustic soda stocks in KT
  • Operating rates began 2009 at 60%, but quickly recovered due to stimulus and seasonal factors
  • By June 2009, they were at 71.3% and they went on to peak at 83% during 2011
  • Since then they have been slowly sliding, with June 2014 seeing a major fall to 73.6%
  • Caustic stocks seemed to have stabilised since mid-2010, but they rose sharply during Q4 2013
  • They hit 296KT in February as producers hoped demand would rise seasonally
  • But this proved wishful thinking, causing the hurried drop in operating rates in June
  • June’s 73.6% rate brought stocks down to a more reasonable 249KT

Having run a major chloralkali business in the past, the blog suspects the outlook for H2 is fairly clear.  Producers will keep operating rates low in Q3, and will only be tempted to increase them if stocks continue to remain under control.

This may become difficult to manage due to geo-political issues.   Russia has been Europe’s second largest PVC customer for many years, and the Ukraine its 3rd largest customer, according to trade data from Global Trade Information Services.  And PVC, of course, is one of the main uses for chlorine.

Last year, Russia and the Ukraine took around 24% of Europe’s PVC exports, for a total of 236KT.  These volumes have already been hit by Ukraine’s civil war; exports to it were down 29% by April versus 2013.  And there is clearly potential for a further volume reduction if today’s economic war escalates between Russia and the EU.