US OxyChem raising caustic soda prices on lower supply

Focus story by Bill Bowen

HOUSTON (ICIS)–Occidental Chemical (OxyChem) sent a letter to customers on Thursday to announce a caustic soda price-increase of $60/dry short ton (dst) for the US market and $65/dry metric tonne (dmt) for customers in Canada.

The off-schedule increase is effective immediately or as soon as contract terms permit, the letter said. OxyChem told customers in the letter that a 100% order control remains in effect with required lead times of 30 days for barge shipments and seven days for railcar orders.   

The size of the price increase and the timing of the announcement surprised some market participants. Increases of $40/dst are almost an industry standard. And an almost industry-wide proposed increase of $40/dst in the first quarter, with $10 added on in April, only succeeded in getting prices up about $20/dst by May.

Some market participants also thought an announcement would come late Friday afternoon, to go all but unnoticed by most before the holiday weekend.

But producers, including OxyChem representatives, on Thursday were making the case for an increase. Other producers are expected to make similar announcements in the coming days.

They pointed to lower chlor-alkali operating rates that have produced less caustic soda as demand for chlorine-based vinyls and other products remained soft.

“Caustic production is down because integrated producers aren’t making as much VCM [vinyl chloride monomer] for PVC [polyvinyl chloride],” a producer said.

Additionally, they said, the new production output of as much as 1.45m dst/year coming from new plants built by Dow Chemical-Mitsui, Westlake Chemical and OxyChem, has been offset by the lower manufacturing operating rates. Producers have finely balanced production to meet the new capacity, several market participants, including buyers and distributors, agreed.

Some buyers, though, have remained sceptical of the proposed increases from producers over the past year, as market prices moved down overall. They say that producers are trying to protect price levels from the new production capacity in the market.

“They say it’s tight, but when I need extra material I don’t have any problem getting it,” one buyer said.

Recent chlor-alkali production figures tend to counter that argument. Released on Wednesday, those figures showed that through April chlorine and caustic soda production are down, although by less than 1%, to 3,963,102 tons, from 3,989,743 tons in the first four months of 2013.

However, even one producer conceded what other market participants also are pointing out: Chlorine production figures are likely to rise very soon on seasonal factors, including expected rising demand for construction materials made from PVC.

Production figures from the new production facilities are also expected to rise slowly in coming weeks.

Current US caustic soda spot prices as assessed by ICIS are $350-370/dst for barge product on an FOB (free on board) USG (US Gulf) basis and $320-350/dmt FOB for export product, while contract prices for April are at $540-590/dst FOB.

Major US caustic soda producers include Axiall, Dow Chemical, Shintech, Formosa Plastics, OxyChem, Olin and Westlake Chemical.