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The Advantage Newsletter — 8/10/2006
| Chlorine: | Effective Operating Rates Estimated Average Wellhead Prices |
| 2005 | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sept | Oct | Nov | Dec |
| CL2EOR | 99%-- | 101%-- | 96%-- | 93%-- | 91%-- | 91%-- | 91%-- | 86%-- | 75%-- | 81%-- | 93%-- | 86%-- |
| Prices Per MMBtu | $5.37-- | $5.44-- | $5.82-- | $6.27-- | $5.86-- | $5.99-- | $6.51-- | $7.48-- | $9.50-- | $10.68-- | $9.29-- | $9.76-- |
| 2006 | Jan | Feb | Mar | Apr | May | June | Jul | Aug | Sept | Oct | Nov | Dec |
| CL2EOR | 90%-- | 86%-- | 89%-- | 89%-- | -- | -- | -- | -- | -- | -- | -- | -- |
| Prices Per MMBtu | $8.43-- | $7.09-- | $6.35-- | $6.02-- | -- | -- | -- | -- | -- | -- | -- | -- |
MARKET ANALYSIS UPDATE 10 August 2006
Third quarter 06’ approaches the mid point and current demand for caustic soda remains level. The July 1st price increases for both chlorine and caustic soda were not successful. However, producers were successful in stabilizing pricing for material for a five to six week period and essentially stop price erosion temporarily. However, the east and west coasts are certainly witnessing a slight uptick ($15-$20/dst) for imported material delivered FOB Asia and Europe. At present, Far east integrated chlor-alkali producers are experiencing a negative chlorine value into vinyl derivatives due to increased ethylene cost and very high cash cost for EDC and PVC; resulting in cut backs for operating rates. At the same time though U.S. domestic producers and re-seller’s price aggressiveness persist in many U.S. regions for caustic soda. Diaphragm “spot” caustic soda via barge shipment U.S. Gulf has fallen below the $300/dst price range, but contract prices remain higher. The declining price trend is foreseeable both short and long term due to what should be industry-operating rates that average around the 90% +- effectively. One item that could impact this is the current strong demand for electricity due to the “very hot summer.” But so far this has not been an issue. Initial reports state U.S. GDP for 2nd qtr was 2.6%.; less than half the strong (5.6% GDP) 1st qtr number. With this said keep in mind that historically chlorine growth rates are closely tied to GDP growth rates. Chlorine prices are actually somewhat softer this year versus 2004 and 05, but are expected to remain steady for remainder 06. Today, U.S. producers continue to enjoy a very healthy margin return for the ECU. Even though natural gas has moved upward in the past 3 weeks the cost of the ECU is still recovered solely with the sale price of merchant chlorine today. This leaves the burden of ECU re-investment solely on the caustic side of the molecule. Finally, it is important to remember that over 80% of U.S. chlor-alkali today is produced through five manufacturers. There are five producers remaining after the top five that hold the balance of production. Consumers of chlorine do not have as many options with essentially only four (Cl2) merchant manufacturer sellers. The industry has consolidated dramatically over the past 5-7 years. Shintech Corp. is scheduled to start its new plant in Louisiana at the end of 07 with 400,000/dst +- membrane for the 1st phase. At about the same time Oxychem will remove approximately 200,000/dst of membrane capacity and convert to KOH in Taft, LA. One can see this “net gain” is not that significant overall.
The K.A. Steel ADVANTAGE offers insight into current trends and essential market analysis allowing you to make insightful, well-timed purchasing decisions. With K. A. Steel, customers have the benefit of knowing what K. A. Steel knows. Our customers receive timely coverage of trends in the industry as quickly as the information emerges.
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