Archive
The Advantage Newsletter — 7/5/2005
| Chlorine: | Effective Operating Rates Estimated Average Wellhead Prices |
| 2004 | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sept | Oct | Nov | Dec |
| CL2EOR | 96%-- | 97%-- | 100%-- | 101%-- | 100%-- | 102%-- | 99%-- | 100%-- | 102%-- | 97%-- | 100%-- | 101%-- |
| Prices Per MMBtu | $5.38-- | $5.01-- | $4.83-- | $5.06-- | $5.48-- | $5.69-- | $5.45-- | $5.21-- | $4.73-- | $5.30-- | $5.91-- | $6.08-- |
| 2005 | Jan | Feb | Mar | Apr | May | June | Jul | Aug | Sept | Oct | Nov | Dec |
| CL2EOR | 99%-- | 101%-- | 96%-- | 93%-- | 91%-- | 91%-- | -- | -- | -- | -- | -- | -- |
| Prices Per MMBtu | $5.37-- | $5.44-- | $5.82-- | $6.27-- | $5.86-- | $5.99-- | $6.51-- | -- | -- | -- | -- | -- |
MARKET ANALYSIS UPDATE July 5, 2005
The first half of 2005 for the U.S. chlor-alkali industry concludes on a very strong note. The supply/demand balances allow for the strongest returns in years for the ECU. The first quarter GDP is revised to 3.8% in the U.S. and data shows a very stable manufacturing output domestically. Currently producers are in the process of working to implement the $30/dst price increase effective July 1st. While the fact remains that international chlorine derivative demand in 05' has not been nearly as robust as first half 2004, the U.S. Market is only now perhaps pushing for some type of relief on CL2 pricing from producers as the 3rd quarter unfolds. The caustic soda price for the Alumina industry for second half 05 is absolutely at a historical high from the U.S. Gulf manufacturer at $335/DMT fob US Gulf. Purchasers of caustic soda are monitoring the operating rates for the industry, which have now decreased for the past 100 days from 100% in February down to a May measurement of 91%. While it is true that rate cuts can be attributed to outages it is also a widely held feeling that with vinyl derivative pricing weakening in Europe and Asia that more rate cuts will take place in the U.S. Gulf for CL2 in third quarter 2005. It can however safely be stated that it is not realistic to expect the domestic demand for caustic soda to be anywhere near the 8%-10% growth in demand that took place last year. Overall, the market remains very balanced as far as supply is concerned. The east and west coast continue to witness imports of caustic each month. Many of the prices for the east coast are at significantly lower prices from European fob point and result in a much lower delivered price for product than U.S.Gulf manufacturers. Again, there is minimal new capacity to start in the next 12 months in North America. Equapac (85,000/ECU’S in the Pacific Northwest will impact only regionally. Shintech, if they go forward, is over 18-24 months away from production. Concluding: While several buyers of caustic soda have a negative thought regarding the July 1st increase it is actually possible that producers are not finished with their attempts to increase pricing in the U.S. While there are many variables that will help to resist any more upward movement the true fundamentals will revolve around the industry operating rates going forward and that is of course predicated on Cl2- derivative demand domestically and globally.
K.A. Steel Chemicals would like to take a moment to express our deepest concerns and sympathy for our friends as well as all others affected by Hurricane Katrina. We will continue to keep you in our thoughts and prayers, and if we can assist in any way please contact our customer service line at 800-677-8335. All updates on Katrina will be posted on our website under Library Links as developments occur.
As Katrina swept through the Gulf Coast producers located in Louisiana, such as Oxy, Olin, Dow, PPG, Georgia Gulf and Pioneer, shut down operations to prepare for the hurricane. As of this weekend PPG in Lake Charles, LA, located west of the center of the hurricane, seemed to be the only major producer unscathed by Katrina. Outages continue as facilities come on stream at reduced rates. A minimum of 50,000 dry short ton of capacity has been lost during the first week of Katrina with more expected. The difficulty in restoring capacity at a Chlor-Alkali plant is multi fold. Power must be restored not only at the Chlor-Alkali facilities but also at the Chlor-Alkali facilities customers. Many of these customers take the chlorine in large quantities via pipeline and rail allowing the Chlor-Alkali facility to run at maximum rates. If the pipeline accounts are down or drawing at a minimal rate Chlor-Alkali producers must have incremental chlorine rail cars available for storage to run at capacity rates. The amount of railcars needed is currently unavailable or located in areas inaccessible due to Katrina. It is K.A. Steel Chemicals’ opinion that plants will continue running at reduced rates for the next 15-30 days. This estimated loss of production equates to approximately 10,000-12,000 ECU’s per day. Many producers are having difficult times receiving, as well as finding, raw materials to feed their operations. The lack of rail cars and the much-needed repairs on the tracks seems to be the biggest ongoing concerns. Railroads rerouting cars north of the area are facing major bottlenecks. An estimated 25-30% of production is in the state of Louisiana and it could take weeks if not months before we see normal flows of material leaving the Gulf.
Producers announced a round of increases slated for October 1, 2005. Prior to Hurricane Katrina, Natural Gas eclipsed $10 MMBTU. This in itself would have forced producers to announce a round of increases for caustic soda and chlorine. With Ethylene snug and the current price for Ethylene being what it is, the chlorine value has been substantially reduced when figuring the cost of EDC (Ethylene dichloride). EDC is the largest outlet for the storage of chlorine for the Chlor-Alkali producer. Chlorine in the international market has had the equivalent of a negative value over the past couple months when natural gas was well below $10 MMBTU. Today with new gas prices, the margins have become intolerable, therefore exports of EDC have all been ended. We export 10% of all of our domestic chlorine in derivative form with the vinyl chain being the largest share of this. The lack of export, as well as, the end of the bleach season may help producers in the form of operating rates being reduced when dealing with the hurricane issues.
Based on natural gas for the month of August being estimated at $6 MMBTU and each $1 per MMBTU equals $30 per ton on an ECU basis, therefore natural gas today at $10 MMBTU from the August rate of $6 MMBTU equals $4 MMBTU times $30 per ton for a total incremental cost of $120 per ton on an ECU basis. This more than likely explains the increase for caustic soda being $50 per dry short ton and chlorine at $25 per ton.
Asian imports continue to dominate the west coast limited only to tank capacity. European imports continue to hit the east coast at prices substantially less than Gulf Coast contracts. Recently there seems to be an effort to increase pricing on the eastern seaboard due to a lack of available vessels.
Once again I would like to remind our customers to please visit the Library Link in our web page to see any updates that occur on Hurricane Katrina. These will be listed under a separate category called Katrina Disaster News.
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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