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Archive

The Advantage Newsletter — 7/6/2003

MARKET ANALYSIS UPDATE JULY 6, 2003

The July 1st price increase for caustic soda has been officially rescinded. The primary reasons behind the failure of this increase are lack of demand, perceived bulging inventories, and a surge of low priced import product destined for the eastern seaboard. Producers originally announced this increase due to high natural gas prices ($6/mmbtu), which affected their ability to compete with low priced chlorine derivatives in the world market. Major products affected by this were EDC, VCM and PVC. By temporarily exiting this market, it was expected that producers in the United States would be forced to cut rates substantially in order to balance supply and demand for chlorine and caustic soda in U.S. In reality, shortly after the announced increase, operating rates for April were posted at a higher than expected 93%. The May operating rates fell slightly to 91% but far short of the anticipated drop. This, coupled with an unexpected surge of low priced imports originating from Europe destined for the eastern seaboard of the United States, all but doomed the increase. Unless producers continue to reduce rates, it is anticipated we will continue to see further softening in caustic prices throughout the third quarter. Many industry experts forecast further rationalization of U.S. producers and/or plants. Although unofficial, it is anticipated that Formosa Plastics will close its Baton Rouge facility sometime in the third quarter. This facility is estimated to produce 285,000 dry short tons of caustic soda. There are many unconfirmed reports at a possible joint venture or merge between two significant US producers of chlor-alkali, which at this point remains only rumor. This report is not confirmed to date, but does warrant a comment concerning the possibility of a potential merger. There are many difficulties in forecasting caustic soda prices in today’s market. The following market variables/dynamics make the future uncertain of a clear direction. · Will distribution unload inventories to make room for anticipated relief? What effect would this have on the market? · What is the future, short term and long term, for natural gas prices and the effect on the producer to respond to higher costs despite lack of demand? · As the West Coast reflects imports from Asia and the East Coast reflects imports from the Middle East and Europe, how much market share can the US producer afford to ignore before choosing to become competitive in the regions? Exports of caustic soda are up significantly, compared to last year, and imports continue to rise to a forecasted 620,000 dry short ton annual rate. Chlorine prices in the United States seem to have stabilized, which may reflect producers running at rates comparable to actual demand. It would seem, as rates continue to decline and caustic inventories are worked down the caustic soda market should stabilize itself, before NG cost is an issue in the winter months.

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.