Buyers accuse caustic soda producers of fixing prices in lawsuit

Source: ICIS News

2019/03/29

HOUSTON (ICIS)--Five buyers are suing the major producers of caustic soda in the US, accusing them of colluding to raise prices.

The buyers are hoping to get class action status for their individual cases, the first of which was filed in court on 22 March.

The defendants include Olin, Occidental Chemical (OxyChem), Westlake, Shintech, and Formosa Plastics – all of which are the biggest producers in the US.

Westlake, OxyChem and Formosa Plastics declined to comment, while the others did not immediately respond to requests for comment.

The lawsuits allege that the producers had been fixing prices since at least October 2015, following a stretch of poor market conditions.

From 2012 until Q4 2015, prices for caustic soda were either flat or declining, the buyers say. Demand had been flat, and the industry had too many chlor-alkali plants - the source of chlorine and caustic soda.

Because of overcapacity and little growth in demand, margins for caustic soda changed little over the years, the buyers contend.

The buyers allege that in response, the producers essentially formed a cartel, restricting domestic supplies, allocating markets and fixing prices.

They maintain that the producers lied to customers about supply, falsely claiming that it was tight or scarce.

In Q4 2015, the companies began raising prices even though demand was slow, the market had excess capacity and costs were either stable or falling, the buyers allege.

Since then, prices for caustic soda have risen by more than 50%, and profit margins have soared as a  result, the buyers say.

Supply and demand could not account for such a large run-up in prices, the buyers allege.

Even though the companies had shut down capacity, domestic supply was largely flat in 2016 and 2017, the buyers say. Significant excess capacity persisted. Operating rates were apparently 80-85% in 2015-2018.

The buyers say industrial production is a proxy for demand for caustic soda, and it had been falling from November 2014 through March 2016. It was only in November 2016 that it started growing again. The industrial production index would not reach its earlier November 2014 peak until April 2018.

Similarly, the buyers allege that costs alone could not account for the run-up in prices. Energy costs make up 50-75% of the total production cost of caustic soda, according to the buyers. Average wholesale power prices have varied little from 2015 to 2017, even while prices for caustic soda rose sharply.

"Absent illegal coordination, this is a very suspicious feat for a mature, oligopolistic industry selling a commodity product at a significant profit in the face of excess industry capacity, flat or decreasing costs and only nominally increasing (or largely flat) domestic demand," the customers say in the lawsuits.

The lawsuits allege that the producers were able to communicate with each other directly by their attendance at national and state industry association events in the US and in Europe; and by attending conferences organised by ICIS and Tecnon OrbiChem, as well as by IHS Markit.

The buyers also allege that the producers were able to manipulate a price index published by IHS Markit that is used as a significant benchmark in the US caustic soda market. IHS Markit declined to comment.

The following table shows the buyers who filed lawsuits and the case numbers. All of the lawsuits were filed in US District Court, Western District of New York.

Case Number Plaintiffs Court
19cv00385 Miami Products & Chemical Co New York Western District Court
19cv00386 Amrex Chemical Co New York Western District Court
19cv00403 Perry's Ice Cream Company Inc New York Western District Court
19cv00392 Midwest Renewable Energy LLC New York Western District Court
19cv00393 Main Pool and Chemical Co Inc New York Western District Court

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