NE Asia caustic soda hits 28-month low on strong selling pressure

SINGAPORE (ICIS)–Northeast Asia’s liquid caustic soda have hit a 28-month low and will likely remain under pressure as producers face mounting inventory, while shipments to the key India market are still hampered by certification requirements.

 – Japan producers saddled with high inventory; no workarounds for exports to India

 – Ample supply to last into Q1 2019

 – South Korea, China producers focus on domestic markets

Containers at a terminal at the Jawaharlal Nehru Port Trust in Mumbai, India (Source: AP/REX/Shutterstock)

For the week ended 30 November, average caustic soda prices declined $10/dry metric tonne (dmt) from the previous week to $302.50/dmt FOB (free on board) NE (northeast) Asia, the lowest since 29 July 2016, according to the data.

Spot prices have been on a general downtrend for eight weeks since 12 October, the data showed.

Indian authorities have started requiring caustic soda imports to have certification from the Bureau of Indian Standards (BIS) since April, although this was not enforced until October.

This prompted northeast Asian producers, mainly from Japan, to put contract volumes bound for the south Asian country on hold.

India is a major importer of caustic soda, importing 411,033 liquid tonnes of the material in the financial year ending March 2018, according to official data.

Indian authorities met on 29 November to discuss the BIS issue, but proposed exemptions by northeast Asian producers were not successful, according to market sources.

All caustic soda exports into India will therefore require accompanying BIS certification.

The BIS certification takes three to six months to process, and a number of northeast Asian producers are expected to submit their applications by end-December, market sources said.

While regional producers are actively trying to manage inventory levels by negotiating earlier contract shipments to other regions such as the US West Coast or Australia, mounting inventory concerns remain if they do not find any outlets for the excess volumes in early 2019, the sources added.

India was Japan’s second-largest export market after Australia last year, taking 34% of Japan’s total caustic soda exports in 2017, according to data from Japan’s Ministry of Finance.

Supply from Japan is therefore expected to remain long into the first quarter of 2019.

The present situation does not affect producers in China and South Korea as much.

While China is a net exporter of caustic soda, stable domestic demand and lower spot prices in Asia have led to scant export volumes since mid-2018 as producers focus on the more lucrative domestic market.

South Korea is also a net exporter of caustic soda, but downstream expansions in the country are due to come on stream in the first half of 2019.

These expansions include capacity additions in the epoxy resin, super absorbent polymers, semiconductor, and oil and gas sectors, and are expected to increase demand for caustic soda significantly by a total of 120,000 dmt/year.

With a 150,000 dmt/year capacity expansion in the country only expected in November 2019, it will have less volume to export as producers concentrate on catering to increased domestic demand.

Focus article by Jonathan Chou