Tight supplies, firm prices

By Staff -- Purchasing, 3/12/1998

Strong demand and snug availability will keep domestic hydrochloric acid prices firm throughout 1998. Buyers look for tags to remain above $80/ton. In the second quarter, prices will average $85/ton on contracts and $96/ton for spot purchases, according to the latest data from Purchasing's monthly survey of chemical buyers.

During the past two years, domestic hydrochloric acid prices rose sharply. This trend is related to the shift in the hydrochloric acid market from a by-product status to more of a commodity chemical position. At the same time, prices for hydrochloric's raw material--chlorine--also increased dramatically.

The average U.S. bulk contract for twenty-degree acid climbed from an average of $56/ton in the first quarter of 1996 to $68/ton in the fourth quarter. Contracts rose to $72/ton in first- quarter 1997, then fell back to $66/ton in the third quarter. Prices popped back up to $78/ton in the fourth quarter. In January, contracts continued to rise, averaging $88/ton.

Spot market prices for hydrochloric acid are following the same general trend as contracts but with more volatility. In the first half of 1996, spot tags heated up, climbing from $61/ton in the first quarter to $72/ton in the second quarter. In the third quarter, tags slipped, falling to $62/ton. Prices began to recover in the fourth quarter, jumping to $84/ton in the first quarter of 1997. Prices fell to an average of $72/ton in the second quarter but began to recover in the third quarter, rising to an average of $93/ton in January.

SUPPLY: Tight

There are approximately 44 domestic hydrochloric acid producers. Actual capacity levels are hard to estimate, because about 90% of this acid is produced as a co-product or by-product in the manufacture of chemicals, including vinyl chloride monomer, isocyanates, fluorocarbons, and chlorinated organics. The remaining 10% is produced by one of two "on-purpose" methods of production.

While there has been some expansion of hydrochloric acid capacity, most of that new production is not ending up on the merchant market. Producers say that most of this new capacity is ending up in captive markets. As a result, merchant capacity has remained stable or declined just slightly. In 1998, one producer estimates 10%-15% of merchant supply will be taken out of the market and used for captive applications.

Buyers can expect the tight-supply situation to last through most of 1998. Currently, producers are using some nontraditional methods of getting hydrochloric acid to customers. Suppliers are shipping acid longer distances. Traditionally, hydrochloric acid has been a very regional product. Those foundries are being extended. Leadtimes are lengthening. In December, leadtimes were at an average of 3.0 days, up from 2.5 days in November.

DEMAND: Strong

In 1997, domestic demand for hydrochloric acid was at 1 million dry tons. Consumption for this acid tracks general economic growth, so demand is forecast to grow 2%-3%/yr. Hydrochloric acid is used in a wide variety of end uses. At 30% of the market, chemicals production is the largest application for hydrochloric acid. The largest and fastest growing chemical application is the use of hydrochloric acid in oxy-chlorination to produce ethylene dichloride.

The second largest end use for hydrochloric acid is in steel pickling. This application accounts for about 20% of demand. Growth in this use is flat, because most of the large steel picklers have set up hydrochloric acid recycling processes. Oil-field acidizing markets account for another 19% of hydrochloric acid demand, and food processing applications eat up another 17%. Miscellaneous end uses account for the remaining 14% of demand.