Market tightens, price hikes take hold
By Staff -- Purchasing, 10/7/1999
The chlor-alkali market is tightening. Recent price increases for chlorine have taken hold, and caustic soda increases have been announced. Analysts believe that much of the proposed increases will likely go through, and buyers should expect further increases in the coming year.In recent months, the chlor-alkali industry has seen price increases for both chlorine and caustic soda. The latest increase--$25/ton for caustic soda, slated in September--was led by OxyChem; most major producers followed with their own increases. For chlorine, producers recently nominated a $30/ton price increase to take effect in the third quarter, followed by an additional $30/ton increase slated for the fourth quarter.
"There has been a united front on the part of producers for the proposed increases," says market analyst Roger Shamel, president of Consulting Resources Group, Inc., a Lexington, Mass.-based industry analysis firm.
The price increases have been driven primarily by the strength of the vinyl chain, especially due to hot summer demand for polyvinyl chloride (PVC) use in a thriving construction market. But other factors, including unplanned outages, the strength of the U.S. economy, and the recovery of the economies in Asia, have been and will continue to be factors contributing to rising chlor-alkali pricing.
Not everyone agrees with reports of current market tightness, but most believe that prices have bottomed out. "The supply outlook for caustic soda is good," says Louis Charton, purchasing manager at Green Bay Packaging in Morrilton, Ark. Producers may claim that inventory is down some, and their inventories may in fact be a little tight, but there is no problem securing material at this time," he says. "But in the next year or so, I see the market for chlor-alkali tightening up a little bit, and I think that price increases will be small and gradual," Charton says.
According to a Southern U.S.-based purchasing manager. "Our current caustic supplier just announced a price increase of $25/ton. We're under contract, and the supplier has given us a temporary allowance to keep our prices down in the market, but they can take that away when they want to," he says. "I expect that the price increase will affect us in the next month or so."
"Pricing for caustic has been going down since the fourth quarter of last year," says one Midwest-based buyer. "But it looks like the price of caustic is now beginning to bottom out."
"The industry is bottoming out. How much prices will increase depends mainly on the continued strength of the U.S. economy, and the continued recovery of export demand for chlorine to Asian countries," Shamel says. "If we continue to see improvement in these two areas, prices could climb back to near $200/ton levels by mid-2000."
Caustic soda prices had been on a significant downslide since the third quarter of last year. According to buyers who responded to Purchasing's monthly chemical price transaction survey, average contract prices for 50%, diaphragm-grade material have fallen from $216/ton in the third quarter of last year to the current average of $132/ton. Spot market prices have fallen from $225.2/ton to $154.3/ton on average in the same time period. But buyers expect to see prices increase to about $170/ton for contracts and about $180/ton for spot tags in the fourth quarter.
Prices for 50%, rayon-grade caustic soda have followed a similar pattern. Contract prices fell steadily from $269/ton in the third quarter of last year to about $181.4/ton currently. Spot tags averaged $252/ton in the third quarter of last year, and have fallen to about $141/ton on average. Buyers forecast prices to increase in the fourth quarter to about $190/ton for contracts and $150/ton for spot tags. Prices will then continue to rise gradually to about $195/ton for contracts and $179/ton on the spot market by this time next year, say buyers.
Caustic soda beads prices have remained steadier. Contracts in the third quarter of 1998 averaged $30/ton. Spot tags averaged $28/ton. Now, prices average $30/ton for both contracts and spot tags, according to buyers' data. Look for contracts to increase by about $3/ton to $33/ton for contracts and spot tags in the fourth quarter, and rise another couple of $/ton by mid-2000.
Chlorine prices currently average $144/ton for contracts and $90/ton for spot tags. These levels are a far cry from price levels at the beginning of the year, ($219.7/ton for contracts and $220.2/ton for spot tags). As recent and future price increases take hold, buyers expect contract prices to increase to about $150/ton, and spot tags to rise to about $110/ton in the fourth quarter. Prices for contracts and spot tags will continue to increase gradually to about $165/ton and $125/ton, respectively, by this time next year, say buyers.
Unplanned outages have played a part in the market tightness.
The most significant was at LaRoche Industries Inc.'s Gramercy, La., facility, which has been down since early July because of a series of explosions at Kaiser Aluminum & Chemical Corporation's adjacent alumina plant. LaRoche has been offline since the explosion, and the company does not expect to restart its chlor-alkali unit until October.
Weyerhaeuser and Georgia-Pacific have closed chlor-alkali plants in Longview, Wash., and Bellingham, Wash., respectively. Weyerhaeuser has turned over its long-term requirements for chlorine and caustic soda to Pioneer Chlor-alkali Co. Georgia-Pacific has also signed its chlorine and caustic businesses over to Pioneer.
McNeil Specialty Products Co., New Brunswick, N.J., has announced plans for a new manufacturing plant at Olin's Chlor-alkali site in McIntosh, Ala. The plant is expected to be fully operational in 2001.
Dow Chemical has recently postponed an expansion. The company planned to bring 300,000 tons of caustic soda on-stream in the fourth quarter of this year, but has postponed that expansion indefinitely, according to analyst, Roger Shamel.
A study conducted by Chemical Market Associates, Inc., an industry analysis firm in Houston, Texas, states that operating rates in the U.S. are at levels that will support strong upward movement in chlor-alkali prices after 2000. Right now, demand is catching supply and operating rates are increasing. As GDP performance improves, demand for chlor-alkali will improve and supply/demand balances will tighten, according to the study.
In other supply news, Dow Chemical recently launched a new Web site aimed at customers who buy caustic soda, according to a company press release. One of the main features of the site is online caustic soda ordering capability. Sections of the site give a general caustic soda overview, information on the company's products, safety and handling information, information on customer accounts, and responsible care. The site is located at www.dowcaustic.com.
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