Buyers see gradual price increases this year
By Staff -- Purchasing, 1/13/2000
Chlor-alkali (chlorine and caustic soda) prices have risen considerably in the past few months. The most recent price move was a $50/ton increase for chlorine in December, led by Dow Chemical and PPG. For the coming year, buyers anticipate more gradual increases in chlor-alkali tags."After several years of declining prices and flat production, a combination of improved demand and limited supply have led to a tight U.S. chlorine market," says Roger Shamel, president of Consulting Resources Group, a Lexington, Mass.-based analysis firm that tracks the chlor-alkali market.
One caustic soda buyer, located in the Midwest, agrees with this assessment, noting that market prices have gained almost $60/ton in the past few months. The buyer attributes the price rise to tight supplies, pressure for producers to regain margins, and continued strength in the U.S. economy.
Latest transaction price survey by PURCHASING Magazine puts caustic soda liquid diaphragm grade material at $126.5/ton for contracts and $152.6/ton for spot buys. These prices are down from $161.1/ton (contract) and $195.3/ton (spot) in first quarter 1999. Looking ahead, buyers expect that strong demand in second-half 2000 will push prices up to about $145/ton for contracts and $165/ton spot during the fourth quarter.
Prices for rayon-grade caustic soda show a similar trend. Contracts fell from about $207.5/ton in first quarter 1999 to about $175.5/ton at present. Spot tags started 1999 at $176.3/ton, then dipped to $140.6 in second quarter. From there, prices rebounded to the current average level of $197.5, according to PURCHASING's monthly transaction price survey of chemical buyers. For rayon-grade material, buyers expect pricing to stabilize at about $180/ton for contracts and $195-$197/ton for spot buys throughout 2000.
Caustic soda bead prices bottomed out in third quarter 1999, according to buyers. Contract pricing fell from 28.3¢/lb in the first quarter to 25.3¢/lb in the third. Spot prices averaged 24¢/lb in third quarter, a drop of 7¢/lb from the first-quarter average. From there, upward pressure from limited supplies took effect, bringing prices up to 26¢/lb for contracts and 27¢/lb for spot. Buyers expect that gradual supplier price increase proposals will bring prices up another couple of cents in 2000. By fourth quarter, buyers expect pricing to average 28¢/lb for contracts and about 31¢/lb for spot.
Chlorine pricing, which bottomed out in the early months of last year, has regained ground, especially during third and fourth quarters of 1999. According to buyers, contract chlorine prices averaged $131.7/ton in first quarter 1999, but strong demand for chlorine derivatives caused producers to nominate a slew of price increases. Contract prices now average $180/ton and spot prices are running at about $175/ton. Buyers expect chlorine tags to increase gradually in 2000, averaging $191/ton (contract) and $186/ton (spot) by the end of second quarter. Assuming the U.S. economy remains strong, buyers think chlorine prices could reach the $200/ton mark by first quarter 2001, according to PURCHASING's survey data.
Producer plant outages and strong demand for derivatives--especially polyvinyl chloride (PVC), vinyl chloride monomer (VCM), and isocyanates--are two reasons for tightening chlorine supplies. "Production outages in the Gulf Coast (namely, LaRoche's facility in Grammercy, La.) and the closure of two chlor-alkali plants in Washington State (Weyerhaeuser's plant in Longview, Wash., and Georgia-Pacific's plant in Bellingham, Wash.) have contributed to much of the market's tightness," Shamel says.
Shamel suggests that economic recoveries in Asia combined with continued strength in the U.S. economy will create sufficient demand to support rising chlor-alkali prices in 2000. "U.S. chlorine demand will continue to grow at an average annual rate of about 1.5%, from 13.6 million tons in 1999 to 14.6 million tons in 2004," he says. Chlorine's primary end use, the production of ethylene dichloride (EDC) for VCM and PVC production, will be the fastest growing end use, Shamel notes, averaging 2.7%/yr to consume 6.5 million tons of chlorine in 2004. Shamel says other organics will represent the second fastest growing end use (+2.1%/yr), consuming 3.5 million tons of chlorine by 2004. However, the analyst explains that growth of these end uses will be offset somewhat by a significant decline in chlorine use by pulp and paper manufacturing, where chlorine has previously found great use in pulp-bleaching applications.
In supply news, LaRoche Industries Inc., based in Atlanta, Ga., has announced that its Grammercy, La. chlor-alkali plant is well on its way to full production, reaching 70% of capacity and shipping its first rail car of chlorine in early December, since a July explosion at an adjacent Kaiser alumina plant forced the company to shutter operations.
McNeil specialty Products Co., New Brunswick, N.J., has announced plans for a new manufacturing facility at Olin's chlor-alkali site in McIntosh, Ala. The plant is expected to be fully operational in 2001.
The Dow Chemical Co., Midland, Mich., recently postponed an expansion. According to analysts, the company planned to bring 300,000 tons of caustic soda on-stream during fourth-quarter 1999, but postponed that expansion indefinitely.
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