Prices seen rising as lower chlor-alkali rates tighten caustic soda supply
Earlier increases in domestic prices seen accepted by market
Petrotahlil - Olin, the world's largest chlor-alkali producer, has announced price increases for US spot and contract caustic soda of $80/dst and C$125/dmt in Canada, according to a letter to customers obtained by Platts.
The letter, dated Monday, said the increase was in addition to a $60/dst hike announced in March.
The letter also said Olin would strictly adhere to order controls and volume allocation, which market sources said stems from tightening supply as US chlor-alkali plant operating rates decline. Olin did not respond to a request for comment.
The latest industry statistics show US chlor-alkali rates rose to 90% in March from 86% in February. However, sources expect April rates to decline to 70% to 80%, reflecting lower output amid sharp demand destruction for chlorine and downstream products made with it on fallout from the coronavirus pandemic. Shutdowns have slowed or stalled construction activity, slashing demand for PVC to make pipes, window frames and other products, and reduced oil and natural gas output has siphoned demand for hydrochloric acid to assist production.
Those demand decreases are directly linked to lower upstream chlorine demand. While demand for chlorine to make bleach has risen in response to the pandemic, market sources said that pull is not enough to overcome the lack of demand for PVC, hydrochloric acid and other chlorine derivatives.
Caustic soda is a byproduct of chlorine production, so reduced rates in response to lower chlorine demand has tightened caustic soda supply, supporting higher prices for domestic and export material, market sources said.
Olin's price increase announcement is its third in the US so far this year. All five US chlor-alkali producers announced $30-$40/dst caustic soda price increases in February, and most announced additional increases in March ranging from $60 to $70/dst.
Market sources said the February increases have largely been implemented, and the March increases appear to be gaining acceptance, although the full amounts can take up to 90 days to show up in contracts, according to market feedback.
EXPORT CAUSTIC SODA PRICES RISING AS WELL
Export caustic soda prices also have sharply increased on supply tightness. On Tuesday, prices were assessed $120/dmt higher week on week at $355-$365/dmt FOB USG, based on deals heard done at $360/dmt and $365/dmt FOB on cargoes bound for Latin America. Offers were heard at $400/dmt FOB, although sources said deals had not been concluded at that level.
Late last week and early this week, deals had been heard done at $270/dmt FOB and $305/dmt FOB, illustrating the rapid rise in pricing.
"It's all over the map," a source said.
Caustic soda prices were under pressure for much of 2019, particularly in the final three months of the year, when industrial demand dropped sharply. Price fell more than 51% to $200/dmt FOB at year-end from $410/dmt FOB in March 2019, and had inched up to $240/dmt FOB earlier this month until the deals in the mid-$300/dmt range jolted the market, sources said.
The price strength stems from supply tightness, which could loosen in the coming months and soften pricing, sources said. Supply was expected to remain tight through June, when Formosa Plastics USA has a turnaround on tap at its 736,000 mt/year chlor-alkali plant in Point Comfort, Texas.
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