US caustic soda still responding to ’17 supply disruptions

HOUSTON (ICIS)–Late in the third quarter of 2017, Hurricane Harvey knocked out of operation a number of chlor-alkali plants along the US Gulf Coast, and caustic soda prices globally skyrocketed.

Three months later the deadline arrived in Europe to cease chlor-alkali production using mercury cell technology, a date known well in advanced that shuttered a number of plants in that region.

The two events threw global supply into disarray, separated regional prices and altered trade routes, a rearrangement of the industry that has still not settled.

But there are signs that global markets are rebalancing almost a year after those changes.

The closure of mercury cell plants, which had caused some pre-buying during the autumn that helped push prices higher, didn’t cause the kind of long-term disruption some had anticipated. Higher production rates at remaining plants appear to have more than covered the loss of production capacity.

The forced reduction of alumina operating rates in China on environmental reasons helped blunt sentiment of short supply.

Now, after months of elevated prices, those in Europe and Asia have fallen sharply in recent months, even as US prices have hung near their higher levels.

“I think we are finally seeing some rebalancing and a return to more of a routine market,” a producer said in recent weeks.

But other after-effects remain in evidence.

US liquid caustic exports, which have grown steadily in recent years, are relatively flat through May, compared with the first five months of 2017, according to data from the US International Trade Commission (ITC).

That comes even as US production of caustic soda continues to climb.

But structural global tight supply remains as China continues lowering export volumes.

Global prices have softened significantly during the second quarter and into the early part of the third quarter. US prices remain significantly higher than those in Asia and Europe, which have fallen by about $200/dmt (dry metric tonne) this year or more.

That is likely to change. US spot export prices, which had bumped up against $700/dmt in the weeks after Hurricane Harvey hit Texas, have fallen to $600/dmt. They remain $200/dmt higher than last year at this time.

Given that the US exports 25% of its production, according to figures from the Chlorine Institute and the ITC, US spot export prices may move closer to the pricing levels in other regions in the coming months.

That may also alleviate some of the price pressure in the US domestic market which has seen contract prices move up by about $120/dst (dry short ton) ($132/dmt) since July 2017.

US spot export business also remains scant. The tight supply situation has reduced the amount of material produced apart from that obligated by contracts.

“I don’t know if we’ll ever see the kind of spot business that used to be predictable and schedulable,” a markets analyst for a major US producer said. “At least not until additional capacity is added.”

US producers have announced incremental expansions of polyvinyl chloride (PVC) and chlor-alkali production capacities, apparently to slowly add production as global demand grows.

Still, none of those additions will be online before 2020, according to estimates.

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

Focus article by Bill Bowen