US caustic soda demand slumps on alumina market declines

Author: Bill Bowen

2019/08/21

HOUSTON (ICIS)--The third quarter was previously expected to be the rebound quarter for US liquid caustic soda, but prices are soft and the outlook for the remainder of the quarter is looking weaker.

The US caustic soda market was supposed to see tight supply and firm prices prices with the resurgence of demand from a giant alumina refinery in Brazil and to cover production lost from a Braskem outage, also in Brazil.

Those changes in the America’s market were learned by the market in mid-May, prompting a price spike in spot export markets and a record volume of caustic soda exports in June.

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However, the price spike was short lived. Following the record volume of exports for June, export prices in July and August softened.

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“This isn’t the market that everyone was expecting,” a trader said this week.

The return of Norsk Hydro’s Alunorte alumina plant in Brazil was expected to boost demand for US liquid caustic soda. Instead, at least for the short term, it has made the alumina market long and reduced caustic demand. (Photo from Norsk Hydro's website)

Demand to the alumina sector, partly because of the return of Alunorte to full production, has taken a downturn.

That triggered a decline in alumina prices in an already soft industrial market roiled by tariffs and trade war uncertainty.

Global aluminium prices are down 17% so far in 2019, according to data from the London Metals Exchange (LME).

Alumina production, which consumes more than one-fifth of caustic soda production, is also off. Prices are down 15% since the beginning of the second quarter and some inefficient plants are being considered for closure.

The JISCO Alpart alumina smelter in Jamaica has laid off 250 workers and local politicians are working to avoid further cutbacks. Company officials say that the older plant needs refurbishment to make it on the current thinner margins.

The fate of the alumina industry is closely tied to caustic soda, used to refine raw baxuit into a the white power alumina that is then smelted to make aluminium.

Alunorte bought 650,000 tonnes of US caustic soda exports in 2017, the last full year that it was fully operational. For the past 16 months, it ran at half capacity and consumed half of the exports that it had contracted from US producers.

Alunorte's return to full production sent supply sentiment long in the alumina industry.

Jamaica, home of JISCO Alpart, is the third-largest export market for US caustic soda after Brazil and Australia, all three countries home to major alumina refining operations.

“The alumina situation is going to show up in the caustic soda market,” a buyer in the alumina industry said.

US caustic soda exports in June jumped to a record level as US producers sought to supply Braskem’s regional customers and to provide Alunorte with material for its operations.

“The news from Braskem and Alunorte came when caustic prices were considered at a low,” the buyer said. “Now everyone is supplied and prices are still softening.”

The shipments to Brazil more than covered the domestic demand and some material has been re-exported and a domestic producer has exported material from the country.

However, the situation may be changing.

Two US producers have told clients that they will not have material available for spot transactions until October. August and September business is likely to shed light on the fourth quarter.

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

Focus article by Bill Bowen