European short-term caustic soda outlook tightens on global trends

An offshore wind farm in China. Environmental restrictions in the country could affect the global caustic soda market. Source: Imagine China/REX/Shutterstock

LONDON (ICIS)–The short-term outlook for European caustic soda is trending in a balanced to tighter direction on the back of global trends.

Later in the quarter, however, downstream issues in China complicate the demand picture.

Asian price trends in Q2 have been stable to firm while US availability has tightened following a production outage at Braskem in Brazil, with South American prices rising as a consequence.

In addition, one of the production embargoes at alumina refiner Alunorte was lifted last week, raising the possibility that the facility will resume operations at higher rates later this quarter.

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However, environmental concerns have reduced aluminina production in China in mid-May which may point to a longer caustic soda market going forwards.

“Loss of caustic demand in China might make [the] Asian caustic market long,” one buyer noted.

European export availability is also limited because of the large number of shutdowns taking place in northwest Europe (NWE).

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“Our assessment is that spot availability out of NWE will be limited, if any, during May and June. July will depend on timely restart in Stade and Rotterdam,” one producer said.

High availability and low global prices were a significant factor in European caustic soda price decreases in the second quarter in both the spot and contract markets, with monthly contract prices also trending downwards.

ECU index

European electrochemical unit (ECU) values rose slightly in the week beginning 13 May as chlorine values were assessed at a slight increase. On the other hand, values remain significantly below average levels seen in 2017-2018 as a result of low caustic soda spot prices.

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Caustic soda export prices have plunged in the first half of 2019. Average Mediterranean FOB (free on board) export prices have fallen by 29% since 4 January, whilst NWE FOB prices fell by almost 39% during the same period.

There is now little European caustic soda available for export from northwest Europe. Limited surplus material is available following turnarounds at Stade and Rotterdam and producers are avoiding exporting to the Mediterranean because of unattractive prices, according to sources.

“There is no product in NWE to negotiate. May and June are done at $260-280/dmt FOB,” one trader noted.

“[European producers] want a lot of volume in Spain, [which they] probably can’t put anywhere else. Italy [is] even worse and pushing prices down,” a distributor said.

“The idea is to try to block imports of caustic soda,” it added.

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The overall index value also fell in March, based on the most recent production data, which showed that higher production of chlorine did not offset lower prices in the market.

European chlorine/caustic soda capacity utilisation rates reached an average of 89% in the first quarter of 2019, the highest recorded level since at least 2006.

Average chlorine production, however, was only 2.5% higher than the 2009-2017 average for the first quarter due to the large drop in European chlorine capacity post-2017.

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The value of the ECU index is also negatively correlated with the total capacity in the market at -0.51.

Caustic soda is used in the manufacture of pulp and paper products, alumina, soap, water treatment and textiles.

Focus article by Chris Barker

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