OUTLOOK '18: European caustic soda to structurally tighten

03 January 2018 12:30 Source:ICIS News

LONDON (ICIS)--The European caustic soda market is likely to remain tight for at least the first half (H1) 2018 due to structural changes in capacity, with demand also expected to be strong throughout the whole of the year.

Volatility is also expected to increase as a result of a smaller base of supply, which will require either higher run rates or an increased volume of imports.

Almost 800,000 dry metric tonnes/year (dmt/year) of net caustic soda capacity has closed in 2017, with almost 1.2m dmt/year closing since 2014, due to the phasing out of mercury cell technology in Europe.

The deadline for closures was 11 December 2017.

Major permanent  caustic soda closures 2017
 Company   Plant   Capacity/year closing (KT) 
 Akzo Nobel  Ibbenburen                                    110
 Ercros  Vila-seca                                  79.5
 Flix                                      84
 INOVYN  Martorell*                                    240
 Antwerp                                    110
 Spolana  Neratovice                                    150

*Replacement capacity under consideration.

However, the deficit in supply could be partially counterbalanced by producers increasing chloralkali utilisation rates from an average of slightly below 80% to between 82-86%.

Depending on the exact rate, this would either result in a small deficit in supply, which would be balanced by reducing exports, or a larger deficit, which might result in Europe becoming a small net importer. Even in the case of a balanced market, there may also be local increases in imports depending on prices and conditions.

Europe is still a net caustic soda exporter. The average yearly caustic soda exports from Europe are estimated to be between 200,000-600,000 tonnes, with the three-year average from 2014-2016 estimated at approximately 300,000 tonnes/year.

European average utilisation has risen by almost three percentage points in the first 10 months of 2017 compared to the 11-year average, putting it at almost 82%.

This suggests that there is room for producers to achieve rates higher than 80% over the long term, although consistent rates in the mid-80s remain untested in recent years.

An utilisation rate of 82% would equate to a roughly balanced caustic soda market in Europe, taking into account exports.

However, one obstacle against higher run rates is the fact that older European plants are more likely to be mercury-based.

Since older plants are likely to run at lower rates, the presence of these caustic soda plants in Europe may be disproportionately lowering the average utilisation rate in Europe.

European caustic soda spot and contract prices rose steadily in H1 2017 due to a combination of strong demand and production shortcoming at European producers.

However, towards the end of the third quarter (Q3) prices spiked as major plants in northwest Europe were converted to caustic potash (KOH) production, and as the possibility of extreme tightness in Q4 became more obvious, leading to a rush in orders.

Early price targets for producers in Q1 have been for increases on the back of the ongoing tight supply situation.

In addition, the healthy economic forecast for 2018 suggests that demand growth will be strong.

European chloralkali utilisation is seasonal and generally based on chlorine demand, with February typically seeing the highest capacity utilisation and December the lowest.

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By Chris Barker