Archive
The Advantage Newsletter — 5/5/2005
| 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%-- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| Prices Per MMBtu | $5.37-- | $5.44-- | $5.82-- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
MARKET ANALYSIS UPDATE 5 May 2005
The U.S. chlor-alkali industry continues to witness near historical ECU returns as mid second qtr 05 approaches. Operating rates for the first time in multiple months have decreased in March 05 down to 96% from the strong consistent average of 100%. The decrease is mostly explained as turnarounds or unplanned outages. While (CL2) demand is possibly slipping somewhat (at least globally) it can be argued that chlorine is still the more difficult of the two molecules to procure. The main reason is that as Vulcan Inc will soon take the Oxychem name there are ‘simply only five’ merchant chlorine producers remaining today.
While many buyers of caustic soda may have felt that the April 1st increase of $40/dst was not going to be implemented, it is safe to say that consumers and re-sellers have been proven wrong. Both the spot price and contract price witness the increase. Momentum actually builds as the month of May unfolds for an announcement of another caustic price increase July 1st by manufacturers. There are several dynamics that lead us to conclude this possibility.
- While Georgia Gulf’s force majeure is not a top five capacity ECU producer (7th in size), however there is growing concern that the continued “shut-down of operations in Plaquemine” is impacting the overall market. This producer would have to continue to “borrow from a co-producer” while also pursue purchases on the open market to meet contract commitments. Note: Dow Chemical begins four-week major turnaround soon in Plaquemine.
- While it is true that the last 3-4 months have shown a more aggressive import price for caustic into both coastal regions, this may be set for a change. Product FOB European producer site Germany and Mediterranean proved to allow major Eastern seaboard distributors to fill tanks in the 1st qtr at prices that were delivered on average to Eastern seaboard tanks at almost $50/dst below U.S. Gulf prices on a delivered basis. However, it is apparent that Western Europe needs to experience improvement very soon in PVC demand or the operating rates must fall in accordance with chlorine demand resulting in decreased Naoh 50% supply!
Overall inventories are now more balanced than early this year.
3. Overall demand for vinyl derivatives in Far East has not lived up to forecast expectations so far in 2005! While for China is again near 9% GDP, Asian Chlor-alkali operating rates may have no choice but to slowdown. Taiwan, Japan and Korean product will always move toward the West coast, but we may witness a slight up tick in fob prices depending on rates of operation. China utilizes lower cost carbide methods versus Ethylene higher cost base vinyl production.
4. Finally, over the next 30 days global Alumina pricing negotiations for firm prices 3rd and 4th qtr will take place. The current differential between U.S Gulf producer $325/dmt fob USG and Far-east producer $ $275/dmt is large and there is no reason to expect this to change. Membrane grade product remains at an absolute premium price in U.S. versus diaphragm grade and this should continue.
Conclusion: Forecasting caustic demand and pricing is not easy for anyone experienced or not. Yes, demand growth for caustic in U.S. in 2005 is expected to be only 2%+- versus 8% +- in 04. However, as stated in previous months this may not really matter that much short term when there is absolutely NO NEW capacity coming on for the next 2-3 years. And there are only a handful of actual producers in U.S. today. The top five producers have well over 80% of nameplate capacity. Yes, the GDP of 3.1% for the 1st qtr 05 was the slowest since mid 2003, but this is not horrific data.
Remember that chlorine demand falls first with economic growth slowdown, producers cut operating rates, and then supply of caustic tightens. Supply and demand always battling regionally and globally offer positive and negatives long and short term.
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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