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The Advantage Newsletter — 3/4/2003
Over the past two weeks, the chlor-alkali industry has experienced significant chaos leading to a fever pitch of rumors and rumbles. Some of which have been confirmed while others have not. KA Steel Chemicals will try to the best of its ability to sort through and explain the most recent developments. The January 1st caustic soda increase of $70 per dry short ton was met with stiff resistance, and over a period of two months, was stair-stepped down to $20 per dry short ton. All indications were that the market was going to continue in a downward spiral. Due to the increased demand of chlorine and the lack of demand of caustic soda, inventories of caustic began to swell. Almost overnight natural gas exploded from a level in the fourth quarter of slightly under $4 MMBTU to contract numbers as high as $10 MMBTU with spot numbers exceeding $20 MMBTU. Natural gas settled out approximately $9 MMBTU for March purchases. With this rise in natural gas, many producers were forced to shut down or cut rates. Formosa Plastics immediately shut down their Baton Rouge facility, PPG was reported to have cut their operating rates 10-15% in Lake Charles, LA, Pioneer in Henderson, Nevada was reported to have shut down, unconfirmed reports had Occidental shutting down their Taft, Louisiana facility for a few days, as well as Dow and Georgia Gulf throttling back their operating rates. When it’s all said and done, we probably lost an estimated 10% of production over the last 2-3 weeks. Any inventory buildup in the gulf was immediately disbursed. Although the initial panic has subsided, producers of chlor-alkali have formulated a process for dealing with these large fluctuations in natural gas. Most producers have announced caustic soda increases of $125 per dry short ton and chlorine increases of $70 per ton slated for April 1st. In addition to this increase, Formosa Plastics was the first to initiate a formal process for dealing with the fluctuations in natural gas. Their increase in caustic soda will fluctuate between $125 -$200 per dry short ton based on further increases in natural gas. Dow Chemical eliminated off schedule pricing and immediately went to schedule pricing of $400 fob gulf less a TVA, which will fluctuate monthly with the rise and fall of natural gas. Oxy announced a process of for every one-dollar MMBTU above $6 MMBTU, caustic soda prices will rise by $22 a dry short ton. For every dollar above $6 MMBTU, chlorine will rise $15 per ton. These are a few of the examples of the most recent announcements. The next few weeks will be interesting times for the chlor-alkali producer as well as the consumer. It is too early to tell how the consumers will react to the attempt at shared responsibility of the fluctuations in natural gas prices. There are many various ways to purchase natural gas and no one producer is alike. Some producers seemed to have hedged an estimated 1/3 of their natural gas requirement with 10-15% in the spot market and the remainder under contract prices at the close of the month. Some producers have a distinct advantage over producers utilizing natural gas versus coal, hydropower or nuclear power.
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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