U.S. Caustic Soda Market Tight Despite High Operating Rates

Rebecca Coons

U.S. chlor-alkali producers recently implemented a $30/ton increase for caustic soda, citing tight supply. Inventories are low and spot availability is scarce, one producer says.

The increase surprised some customers, who say high operating rates in the third quarter, flat U.S. demand, and economic downturns in several caustic soda end markets should reduce supply pressures. Overseas consumption of U.S. product has increased, however, which may explain the tight market, sources say.

Operating rates never dipped below 95% throughout the third quarter, trending 2%-5% higher than 2006 third-quarter operating rates, says the Chlorine Institute (Arlington, VA). Year-to-date production for September totaled 8,245,301 tons, up 4.41% from September 2006 levels, the Chlorine Institute says.

"Apparent consumption" of caustic soda in the U.S. in the first half of 2007 fell by 1.75%, or 96,000 m.t., says Harriman Chemsult (London). Despite this drop off in demand, one producer says that his company is on 100% allocation and still receiving requests for additional material.

The U.S. exported 18%, or 144,000 m.t., more caustic soda in the first half of this year compared to the first half of 2006, Harriman says. Export demand is strong, and the weak U.S. dollar enables U.S. chlor-alkali producers to place caustic soda at competitive prices overseas, one producer says.

European demand has been strong, as producers faced significant outages over the summer. Inventories have just begun to recover, one producer says.

European third-quarter operating rates for chlorine production ranged from 84%-87%, says Euro Chlor (Brussels). September chlorine production in Europe amounted to 853,986 tons, 3.0% higher than September 2006 (829,320 tons), but a substantial decrease of 8.2% below the August 2007 figure (903,194 tons). European caustic soda stocks at the end of September 2007 amounted to 276,697 tons, a 5.6% decrease against the August 2007 figure (293,264 tons).

Changes to chlor-alkali trade balances can explain some of the discrepancy between the high operating rates and low supply, Harriman says. Year-to-date imports into North America for the first half of 2007 were down 16%, or 77,802 m.t., versus the first half of 2006. The high cost of marine freight and strong global demand provide more attractive alternatives to foreign producers, one U.S. producer says. Imports from Canada into the U.S. market for the first half of 2007 fell a considerable 59%, or 60,000 m.t., compared to the first half of 2006, Harriman says.

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U.S. Caustic Soda Market Tight Despite High Operating Rates