APLA ’17: US, global caustic soda prices the ‘million-dollar question’

RIO DE JANEIRO, Brazil (ICIS)–It is the “million-dollar question” at the 37th  annual meeting of the Latin America Petrochemical Association (APLA). Will caustic soda prices soften from the spikes that followed Hurricane Harvey’s intrusion on the markets, or will they continue their upward march from their new elevated level?

“That is the question that everyone is asking us,” said a distributor on the sidelines of the conference, which ends on Tuesday.

Already on an upward trajectory from reduced capacity in Europe and reduced exports from China, US liquid caustic soda prices shot up by almost $200/dry metric tonne (dmt) in the weeks following the storm’s disruptions to production at plants along the Texas coast.

Prices in Europe and Asia have followed, making the answer to that question of interest globally.

“Why haven’t prices come down since the storm?” asked another regional distributor.

It’s a global question.

The US exports a significant portion of its caustic soda production – 2.9m dmt in  2016 and expected to surpass 3m dmt for 2017, according to numbers from the US International Trade Commission (ITC).

Much of those exports are sold in Latin America where US producers are significant suppliers.

US producers have capitalised on capacity reductions in Europe, where an estimated 800,000 to 1m dmt/year of production capacity is being closed because of rules prohibiting mercury cell production.

In China, air pollution concerns have prompted the government to shut plants along the coasts, reducing exports. Rising demand in China’s domestic market has further constrained exports in a years-long trend.

Those trends have put global caustic soda markets in structural constrained supply and have put upward pressure on prices.

Harvey just made it worse.

The question now is whether Harvey’s upward bend of the cost curve will fall back somewhat before prices continue their expected glide higher.

Many US market participants expect a small decline of prices late this year or early next year before the long-term trend resumes.

“Prices have really outpaced the market reality since the storm,” a US market participant said recently. “It has to come down a bit. It’s just a matter when.”

But even this market player expects prices to be under upward pressure for the next couple years, at least, until new capacity is built.

Market participants attending APLA say they will be watching closely for any changes.

Major caustic soda producers in Latin America include Mexichem and Braskem.

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

Focus article by Bill Bowen