NWE caustic soda sellers bullish for Q2 on margins, output constraints

11 April 2014 18:20 Source:ICIS News

LONDON (ICIS)--Northwest European caustic soda producers’ push for higher prices in the second quarter of the year for margin reasons has been strengthened by planned and unplanned output constraints in the region, market players said on Friday.

Buyers have contested any upward price movement on sufficient supply and modest demand, while manufacturers have stressed the urgent need for margin recovery, following price erosion over several quarters.

Price targets of plus €20-30/dmt [dry metric tonne] have been mentioned by two suppliers in northwest Europe, and other sellers are also looking for price increases, although price targets have not been disclosed. Liquid caustic soda contract prices had slipped below €400/dmt on average in the first quarter.

However, sellers saidINEOS ChlorVinyls' force majeure on caustic soda concentration over 33% from its Tessenderlo site in Belgium, along with other plant maintenances and good demand in northwestern Europe, has resulted in a balanced-to-tightening supply in the region. Tightening supply could support any upward price movement in the second quarter.

One said it is considering implementing order control as a result of maintenance and the receipt of some additional enquiries following the INEOS force majeur. It said it will remain firm on price increases and it has “no reason to compromise on price.”

Some buying sources, however, said that they have not seen any tightness in supply in northwestern Europe, despite the planned and unplanned production limitations. They consider rollovers to modest reductions most likely in the second quarter, stating that supply remains sufficient and downstream markets are not strong enough to support any upward price movement.

One source added that sellers are keen not to lose market share and are prepared to remain competitive as a result. It also suggested that the unplanned production issue for one main supplier is likely to be temporary, and it has not seen any impact on overall availability.

One main customer, however, said it has seen an effect on price settlements following the unplanned production news. It said it had heard a mix of rollovers and reductions of €20-40/dmt prior to news of the INEOS ChlorVinyls force majeure situation, but since then the potential for buyers to push for lower prices has become more limited. It said that rollovers and minor price decreases are more realistic.

A few buyers, however, did not rule out the possibility of an upward price movement based on production problems for one main supplier, although a source said it is still too early to see whether the unplanned issue will have any impact on the overall caustic soda market, but it has not seen any adverse effects so far.   

The source said, “I will try and avoid any increase from a demand perspective, as downstream business cannot support paying more. I would compromise at rollover.”  It noted that its demand remains modest for economic reasons, and amid competitive import pressure from Asia.

In southern Europe, some sellers are less bullish about second-quarter prices than in northwest Europe, because of the differences in market fundamentals. One supplier said it is prepared to compromise at a rollover due to good availability in parts of southern Europe, including some improved operations at one unit, which has outweighed output constraints in northwest Europe.

It said it is delaying its second-quarter price discussions until a clearer picture about the supply situation in northwest Europe emerges, in view of the fresh production problems. 

One reselling source said it was forced to accept reductions of €20/dmt for major accounts in Portugal, stating that this was based on bearish sentiment in the surrounding area. The same source, however, said it has secured some rollovers with smaller-volume customers in Portugal. It quoted prices at €360-380/dmt FD, depending on volume size. 

The reselling source questioned the feasibility of second-quarter price rises in southern Europe amid well-supplied market conditions. There is the possibility that any increase could attract spot imports, especially in view of favourable exchange rate conditions. The same source, however, noted that while supply is more balanced in northwest Europe, it does not expect to see any upward price movement, unless serious production problems were to occur.

One customer in Portugal said it had booked its second-quarter business at rollovers to slight reductions, with its prices around €340/dmt. It said that price increases were out of the question, based on the difficulty in passing on any upward price movement downstream due to strong competition and good caustic soda supply. 

Demand in southern Europe has generally been more affected than in northwest Europe because of more pronounced economic constraints.

By Heidi Finch