Caustic soda prices set to retreat as chlorine prices bottom out
By Gordon Graff -- Purchasing, 3/12/2009 2:00:00 AM
In terms of caustic soda prices, last year was one for the record books, with average caustic prices roughly doubling in 2008 due to robust demand and tight supply. But over the past few months, demand for caustic has softened, causing market watchers to project a moderate downturn in its pricing over the next year. Meanwhile, prices of chlorine, which have been sinking for months, may level off or show a slight uptick this year as the impact of chlor-alkali production cutbacks starts to be felt.
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At the heart of these divergent price trends is the co-product relationship between chlorine and caustic soda, plus different end-use profiles for each material. "Chlor-alkali production is limited by the demand for chlorine," says Joel Lindahl, a chlor-alkali and vinyls analyst at Chemical Market Associates Inc. (CMAI) in Houston. And lately, he points out, demand for chlorine has been in the doldrums due to the recession. That's because a great deal of chlorine (at least a third of the output, by most industry estimates) goes into the production of vinyl (PVC) plastics, which are used predominantly in the depressed construction, automotive and heavy durable goods markets. As these industries continued to weaken over the past year, says Lindahl, chlor-alkali producers throttled back their operating rates "to stop production of chlorine that nobody wanted," and to stem chlorine price erosion.
Dow Chemical, for instance recently announced that it would shut down its huge Oyster Creek, Texas chlor-alkali facility due to "the severe economic downturn." The company previously cut back chlor-alkali operation in Ft. Saskatchewan, Alb., and Plaquemine, La. Other North American producers that have recently rolled back their chlor-alkali production, or announced impending cuts, include Formosa Plastics, Oxy Vinyls, Pioneer, PPG, Atofina, Olin and Canexus. A major chlor-alkali expansion by Shintech in Plaquemine came online in 2008, and several other expansions are in the works, but according to an analysis by Olin, actual or announced cutbacks in North American chlor-alkali capacity in the 2000 to 2012 period exceed expansions by 22%. In fact, operating rates for the U.S. chlor-alkali industry have sunk to about 50%, Lindahl reports. "That's just about an all time low," he adds. By contrast, he says operating rates were in the "low-90s" as recently as early 2008.
Those chlor-alkali production cutbacks, however, have also meant less output of chlorine's co-product, caustic soda. As a result, says Lindahl, caustic soda got "shorter and shorter throughout the second half of 2008," causing its prices to escalate dramatically. One reason for this, he adds, is that demand for caustic did not weaken very much during the same period because its uses are much more diversified than chlorine. (Caustic is used to make soaps and detergents, pulp and paper, and many industrial chemicals; it is also used in cleaning dairy and brewing equipment, and in enhanced oil recovery.) Many of these caustic applications, such as detergent making, are relatively recession-proof, observes chemical industry analyst Roger Shamel, president of Consulting Resources Corp., in Lexington, Mass. "People still have to wash their clothes," he says.
The run-up in caustic soda prices in the U.S. has attracted the attention of Chinese and other Asian chlor-alkali producers, Lindahl notes. "So we've seen an influx of imported Asian caustic soda hitting the East and West Coasts," he says. That has made caustic slightly cheaper in coastal areas than in the center of the country, he adds.
The constant price increases in caustic soda—there have been seven in the past year—have left some buyers looking for a way out. One purchasing manager at a medium-sized industrial chemical company along the Gulf Coast says he's been able to replace some of the caustic soda he uses in his manufacturing with lower-priced soda ash (see sidebar). While this approach has saved money, says the buyer, it is not without drawbacks. First, he says, making the switch from caustic soda to soda ash requires a "considerable capital investment." Once the change is made, he adds, "our customers have to re-qualify our products made with soda ash to make sure they're suitable for use in their own processes." In addition, soda ash prices have risen over the past few months, mostly in response to rising demand for the chemical as a lower-cost alternative to caustic soda.
But this is not expected to continue, notes the buyer, because the downturn in housing and autos has sharply reduced demand for soda ash in glass-making, one of its leading applications. As a result, he expects downward price pressure on soda ash, which will continue to make it a more economical alternative to caustic soda.
But even buyers who have stuck with caustic may soon get relief. "I think we're reaching a point where caustic prices are probably peaking," says Shamel. "That's because the economy has been down long enough so that even the demand for caustic soda is starting to decline." Lindahl believes caustic prices reached their high point in December or January, and will begin to slide through much of this year and into 2010. That is due partly to an influx of imported material, he says. Another reason, he adds, is that several key industries that use caustic, particularly alumina and pulp and paper, have recently announced "big cutbacks" in production. But even if caustic tags relax a little, they will still remain high by historical standards, Lindahl says.
As for chlorine, the weak pricing for that material "will not recover until the economy recovers," says Shamel. Poor demand for chlorine is likely to spur a further wave of plant shutdowns or cutbacks, he adds. On the chopping block, says Shamel, will be units that are old, inefficient or located in remote geographical areas.
Those cutbacks may help revive chlorine prices and cheer chlorine sellers, but for now those low rates are good news for buyers. At KMG Chemicals in Houston, chlorine buyer Sheldon Martinez reports that that prices of that chemical plunged in his locality during the fourth quarter of 2008, providing a "nice gift" to his company. For the year 2009 he foresees "very little" rise in chlorine prices, with any increases mostly in the 2% to 5% range.
| Chemical | Chlorine | Caustic soda (Sodium hydroxide) |
| 1Source: American Chemistry Council 2Some for internal consumption 3Industry consensus |
||
| Manufacture | Electrolysis of sodium chloride solutions in mercury, diaphragm or membrane cells. Co-product is caustic soda. | Electrolysis of sodium chloride solutions in mercury, diaphragm or membrane cells. Co-product is chlorine. |
| Demand | 12.0 million tons/year (U.S., 2007)1 | 8.9 million tons/year (U.S., 2007)1 |
| Uses | Production of PVC (from vinyl chloride monomer) and other organic and inorganic chemicals, water treatment, pulp and paper bleaching. | Manufacture of soaps and detergents, pulp and paper, alumina, textiles, many other organic and inorganic chemicals. Cleaning dairy and brewing equipment. Applications in water treatment and the petroleum industry. |
| Growth rate | 1–2%/year (U.S., W. Europe)3 | 1–2%/year (U.S., W. Europe)3 |
| Major North American Producers2 | Dow | Dow |
| Oxy | Oxy | |
| PPG | PPG | |
| Westlake | Westlake | |
| Shintech | Shintech | |
| Olin | Olin | |
| Canexus | Canexus | |
| Formosa Plastics | Formosa Plastics | |
| Pioneer | Pioneer | |
| Atofina | Atofina | |
Caustic soda prices continue to plunge
07/15/2009Surging demand spurs price hikes
07/14/2004Caustic soda prices drop back down in March
03/18/2009Soda ash prices spike
02/12/2009
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