Market tightness catapults pricing

By Staff -- Purchasing, 3/8/2001

Demand for sodium chlorate is slower now from the soft pulp and paper market, its primary end use, but suppliers and buyers are both saying that tight supplies have caused prices to increase rapidly in the past few months. And buyers could see more increases in the near future.

Right now, supply and demand are out of balance. Unusually high operating costs caused by feedstock and energy price increases and power curtailments across North America have caused producers to cut production, which has greatly tightened the supply of sodium chlorate. This tight supply situation has allowed producers to pass most of a stiff $40/ton price increase through to buyers in January, and producers expect additional hikes in April.

Pricing will climb

Buyers saw some rapid price increases in the past six months, according to data from Purchasing's monthly survey of chemical buyers. Sodium chlorate pricing averaged slightly more than $300/ton during the first quarter of 2000, but good demand and increasing energy costs pushed pricing up to about $322/ton for contracts and about $330/ton for spot tags by the end of the year.

Buyers are beginning to see the increases scheduled to take effect in January enter the market. Chlorate prices are forecast to average $360/ton for contracts and about $375/ton for spot tags during first quarter 2001. However, little spot business is being conducted right now. "The market is sold out through the end of the year," says Paul Pimmons, vice president of the pulp and paper business unit at Sterling Pulp Chemicals, based in Toronto, Ontario.

As producers continue to cut back their supply, the market will continue to tighten. Buyers should look for additional price increases in the second quarter, which will boost pricing up to the $400/ton range. Pricing could then stay at this level for quite some time with a probable resurgence in demand from both the pulp market and the U.S. economy during the third quarter.

"We're seeing very tight availability now," says Paul Britt, director of sales and marketing at Huron Tech Corp., a chlorate producer based in Delco., N.C. Tight supply and high pricing is limiting buyers' ability to build inventories. Producers warn that if demand kicks in and the power situation doesn't improve during the summer, the industry could be in for serious material shortages. "Problems won't be a matter of price at that point," says Britt.

Producers expect to see additional increase announcements in the coming months. But whether market conditions will support additional increases in April is up for debate. Producers may announce these increases in support of the January price hikes.

"I expect that by the second quarter, we'll see all of what was announced in January fully implemented, and additional increases will be announced in April," says Sterling Pulp's Pimmons. "Even in the most optimistic supply/demand scenario for sodium chlorate, we see a pretty snug market through the summer," Pimmons says.