OUTLOOK ’18: Asia caustic soda uptrend to continue on strong demand

03 January 2018 07:35 Source:ICIS News

SINGAPORE (ICIS)--Asia's caustic soda prices and demand in 2018 are likely to strengthen following drastic surges from September to November 2017 on the back of booming consumption from alumina refiners coupled with tight supply.

The high price levels of caustic soda in 2017 are very likely to be sustained in 2018 as demand is likely to continue increasing while supply is more stable in the region.

However, some market participants hold a different view that the rise of caustic soda prices above $700 FOB (free on board) NE (northeast) Asia is not sustainable, as many downstream buyers would find that too exorbitantly expensive and may be forced to shut down.

In 2018, overall growth in caustic soda demand and trade flow in Asia will still be led by the alumina industry, which is one of the largest end-users of caustic soda.

There is demand for the cargoes from alumina refineries in China, India, Indonesia, Vietnam, the Philippines, and most notably Australia.

There will also be new alumina refining capacity coming on line in the United Arab Emirates, which will also be likely to source for caustic soda from northeast Asia.

In Asia, demand from new textile and rayon facilities in Indonesia will also increase demand for caustic soda cargoes.

China remains the most important market player to watch in 2018 from the perspective of both supply and demand.

In 2017, waves of stringent environmental inspections kept operating rates of Chinese chlor-alkali producers around 70%, and sometimes only at 50%.

According to many market sources, the environmental inspections will become a new normal, which means the industry can expect similar levels of inspections in 2018 which will very likely curb overall Chinese production.

Another factor which might restrain Chinese production is the continuous weak performance of chlorine, the co-product of caustic soda, which has been hovering in the negative range - producers pay buyers to take the cargoes - for most of 2017.

Unsold chlorine is hard to store, which limits how much caustic soda chlor-alkali producers can produce. This trend is likely to continue in 2018.

Chinese domestic demand for caustic soda will be led by various industries, such as alumina refiners, rayon, and water treatment. Alumina producers in China, despite winter production cuts, are likely to increase their overall production for the whole year.

With the integration of smaller alumina producers with large state-owned enterprises – large Chinese alumina producers such as Chinalco and Weiqiao – Chinese alumina production will likely increase, which will require large quantities of caustic soda.

Another sector worthy of attention is water treatment: as the Chinese government places more emphasis on the environment, the water treatment sector is expected to grow, which will also boost the demand for caustic soda.

Some buyers have already indicated that they will get more long-term contract cargoes instead of spot cargoes in 2018, as spot prices have seen drastic increases in 2017.

Some northeast Asian producers, most notably in Japan and South Korea, have also indicated that they will continue to have tight spot offerings in the new year, as they will keep focusing on long-term contracts.

Therefore, if the current supply/demand dynamics continue, spot caustic soda is very likely to be a highly sought-after commodity this year.

Outlook article by Patrick Han

By Patrick Han