KA Steel Chemicals

MARKET ANALYSIS UPDATE APRIL 7, 2003

To recap the previous month, the chlor-alkali industry witnessed major deviations in energy cost. Because of this, all domestic producers formally announced caustic soda increases of $125 per dry short ton as well as chlorine increases of $70 per ton both effective April 1, 2003. Since this announcement the chaos in the energy sector has diminished and leveled off at a rate higher than the norm, but much lower than the peak. This development as well as the lack of demand for both chlorine and caustic soda, has put the impending increase for chlorine and caustic soda in jeopardy. Operating rates for February are anticipated to reflect January‘s level of 95 %. These higher than normal rates for January and February are expected to be somewhat less for the second quarter. As we neared April 1st, it was obvious that the caustic soda increase of $125 per dry short ton was going to settle out at something significantly less. Most producers agreed that market conditions today, as well as the leveling out of energy cost warranted a revision in the increase. As the first week of April drew to a close, many distributors as well as producers were delaying invoicing, using inventory to carry customers for a short period of time, until the market settled out, and proposed temporary deals for the month of April, due to the uncertainty of the full increase. In addition, to add confusion to the market place, some Asian imports arriving to the West Coast, formally announced $50 pdst in the face of the impending $125 pdst ton proposed by domestic producers. This $50 pdst increase quickly appeared elsewhere on the East Coast as well as the River system, through trading partners of the Asian product. As of Thursday, April 3rd Dow Chemical took the lead to lower the increase to $70 pdst. Many producers quickly followed suit. It was KASC’s belief that the chlorine increase would be the stronger of the two molecules. We have found with the reduction in demand for chlorine, many producers have come off the proposed $70 per ton chlorine increase for April 1, ranging from $50.00-$70.00 per ton, at many end user accounts. From this caustic and chlorine increase most producers of sodium hypochlorite bleach proposed increases ranging from .12-.18 per gallon. Although the market will continue to settle out, there appears to be consensus from the consumer side, that both caustic and chlorine increases may continue to soften if demand continues to wane. From the producer’s standpoint, pricing has become almost secondary to price protection. The move away from quarterly protection to 30 day protection, at best, seems to be the ultimate goal. Producers continue to get hammered periodically by natural gas fluctuations, with little recourse in recouping these costs until the end of the quarter. Thirty day protection and in some cases temporary voluntary allowances, allow the producer a flexibility of passing these costs on to the end user. It will be interesting to note if supply demand balance will continue to dictate pricing as past history has shown or will fluctuations in cost become the driving force. In the past consumers and producers would contract for volume and price protection, whereas now the thought would be to contract for volume with flexibility in price fluctuations ranging daily to monthly. It will be interesting to see how consumers will react. It is KA Steel Chemicals’ fear that most consumers would purchase on a spot basis for a larger share of their requirement because of the lack of price protection and the need to verify or authenticate contract versus spot pricing. In a long market, will consumers explore price protection as a priority over price? It is KA Steel Chemicals’ belief that the industry will still be driven by supply demand issues.

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.

Archive

The Advantage Newsletter — 4/7/2003