Europe caustic soda sellers push for Q3 rises, buyers resist

04 July 2014 16:52 Source:ICIS News

Focus article by Heidi Finch

LONDON (ICIS)--European liquid caustic soda producers are bullish on price rises for Q3 amid profitability concerns and lower availability when compared to recent months, but buyers consider rollovers most likely on a largely balanced market, said industry players on Friday.

Caustic soda producers said there is an urgent need to recoup margin losses, following the price erosion on contract business over the last year.

One main manufacturer said: “It has come to the crucial point either price increases or production cuts due to unsustainably low price levels.”

Sellers noted that they have been unable to compensate for the low caustic soda prices with chlorine derivatives or other chlorine related products such as isocyanates.

They added the increase of €50/tonne in the upstream ethylene contract price for July has also put further pressure on chlorine derivative, polyvinyl chloride (PVC) and the wider chlorvinyls market.

Sellers said there is less availability than in recent months, which is also likely to support an upward price movement for the third quarter.

They said the market is balanced to tight, which they attribute to a spate of plant maintenance, some unplanned chloralkali issues and a lack of spot imports into Europe from other regions because of what they consider to be unattractively low prices.

Producers are discussing price targets of plus €50-60/dmt (dry metric tonne) and they said they have no option but to remain firm on this. Discussions are still in their early stages in most cases, with one producer noting that some business was fixed until the end of July and therefore was representative of the traditional quarter with one month delay.

Buying and reselling sources considered that price stability was most realistic for the third quarter, stating they had not experienced any supply difficulties and supply is sufficient to meet demand requirements.

One buyer said it did not consider sellers’ need for margin recovery as an argument to support price increases, noting that the whole value chain was affected by margin erosion, not only the caustic soda producers.

A few buyers and resellers, however, did not rule out the possibility of some modest increases of €20/dmt as a maximum for the third quarter, amid a firm producer stance.

Some buyers said they had already booked their business in the Mediterranean at a rollover for the third quarter. However, this was not confirmed on the sell-side.

Few players were prepared to disclose actual price levels for the third quarter, although one buyer said expected a rollover or modest rise to be most likely for third quarter, quoting its Q2 price level at around €340/dmt FD (free delivered).

In the first quarter of 2014, there were some indications that prices had generally slipped below €400/dmt FD on average and the price erosion continued into the second quarter, with values moving more comfortably into the €300s/dmt FD.

The downward price pressure over recent months, was despite sellers’ attempts to raise prices for margin reasons, but this was being thwarted by buyer resistance amid sufficient-to-good supply, reasonable to modest demand and strong competition among certain sellers.  

The market is described as balanced to tight, depending on source. Some sellers said they are tight in their systems largely because of recent or current technical output constraints. However, there was no evidence of any buyers experiencing any availability problems.

Consumption remains fairly robust in northwest Europe and the Nordics, with little-to-no summer slowdown visible so far in July. Some lull in activity, however, is likely, particularly in southern Europe. during August, the height of the summer holidays in Europe.

There is ongoing talk that northwest Europe and the Nordics continue to perform better than the Mediterranean, the latter of which remains affected by economic constraints.

By Heidi Finch