OUTLOOK ’17: The calm before the storm for European caustic soda

LONDON (ICIS)–The caustic soda market will enter a calm-before-the-storm scenario in 2017, with a mostly stable situation expected but market players needing to adjust to significant changes coming from 2018 onwards.

Significant capacity changes are expected at the end of the year, with several large chloralkali plants due to be closed as a result of the phasing out of mercury cell technology in December 2017.

Most possible scenarios suggest a tighter European market from late 2017 onwards, which could potentially be rebalanced by higher plant run rates or increased imports from overseas.

Caustic soda FOB spot price 2016

The situation in the European market has clarified considerably in the second half of 2016 following a long period of uncertainty regarding the future of supply in Europe.

Net caustic soda capacity closures totalling between 863,000 tonnes/year and 1.1m tonnes/year are expected in Europe before the beginning of 2017 due to mercury cell caustic soda/chlorine production being declared outside Best Available Techniques (BAT) in 2013, with closures mandated by December 2017.

KEM ONE’s plant at Lavera, France has also been closed due to conversion work at the end of 2016 but is scheduled to restart in January 2017.


However, combined with other plants with lower production the short term impact has been to greatly exacerbate the tightness in the European Mediterranean import markets in the second half of 2016, with prices spiking from September onwards.

Among the major plants scheduled to close in 2017 is the Spolana, Czech Republic site owned by Unipetrol, which will switch to imported feedstocks to produce polyvinyl chloride (PVC) in June, with Ercros also closing capacity at two sites in Spain towards the end of the year. This is likely to lead to local tightness in the central European and Spanish markets during the time period of the closures.

The market consensus is that demand is likely to be at a similar level to 2016, when it was regarded as strong compared to seasonal trends in the none-Alumina sectors. Thus, early expectations are for firm pricing and erratic tightness in the European market in 2017. 

However, the tightness in European markets this year was exacerbated by reduced availability from the US, and with utilisation rates in that country rising and expected to recover in the early part of the year this is unlikely to be a limiting factor for the remainder of 2017.

The US dollar gained strongly against the Euro in 2016 following the election of Republican presidential candidate Donald Trump, which played a part in reducing caustic soda imports into Europe. One of the likely scenarios over the next year involves a stronger US dollar, which is likely to have a similar impact in 2017. 

Average utilisation rates also rose slightly from 2014-2016, due in part to some capacity being phased out in 2014-2015, meaning that the remaining capacity has needed to run at higher rates in order to ensure continuity of supply.  

Shipping data also shows increased interest in southern European and Turkish markets from the Middle East, with shipments recorded from Qatar and Iran in November and December. This is a possible source of material to fill any gaps in availability which has been long speculated about by market players.

Turkey is a major European import market and has suffered from political instability throughout 2016, with an attempted coup in the middle of the year exacerbating already existing economic problems and increasing uncertainty. However, sources say that the market has continued to grow at 1-2% per year.

Chloralkali run rates are expected to jump in the first two months of 2017 as capacity utilisation goes back to normal following lower run rates in the winter season.

However, the market is expected to remain tight in the first quarter of 2016 due to the aforementioned production issues and tightness in the Mediterranean, with producers initially separately targeting double-digit increases, although some prices have yet to be announced and negotiations have not begun in most cases.

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