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The Advantage Newsletter — 1/6/2003
MARKET ANALYSIS UPDATE JANUARY 6, 2003
As the holiday season closes and the new year begins, we can reflect back briefly on the outcome of the proposed $70 per dry short ton increase for caustic soda slated for January 1st. All domestic producers announced a $70 per dry short ton increase effective January 1st, 2003, as early as October 22nd, 2002. Some producers implemented the actual $70 per dry short ton increase as early as December 1st. · As many as four domestic producers were on order control for caustic soda. · Dow Chemical shut down an estimated 400,000 ecu’s. · Natural gas began to rise. · Chlorine pricing did not fall off as anticipated. · Imports of caustic soda to the U.S. (2002) were down approximately 7% (versus 2001). Many of the above points reflect a strong consensus as to why the full increase would adhere to the January 1st effective date. Approximately December 27th a major producer elected to forego the full increase for a lesser sum of $40 per dry short ton. K.A. Steel Chemicals believes the following factors had profound influence in reconsidering the full increase. · Alumina negotiations reflected a slight up tick in price in comparison to domestic contract pricing slated for January 1st. Alumina pricing had decoupled itself from domestic pricing since 1994. Despite this, there is still a psychological effect to consider in an up market. · Although imports were down by 7% in 2002 versus 2001, an estimated 45% of total imports arrive to the West Coast at pricing levels substandard to gulf coast pricing. Although this Asian influence is isolated to the West Coast, many companies with multiple locations (East Coast, Midwest, as well as West Coast) have a difficult time understanding the differential in price. · Chemical Newsletters: despite all domestic producers announcing a $70 per dry short ton increase for January 1st, a major chemical newsletter forecasted a fraction of this total increase adhering to the market. Many consumers have quoted this forecast and eventually it became a self-fulfilling prophecy. As we go forward into the new year, it is K.A. Steel Chemical’s belief that one of two scenarios will apply. A) Similar to the past two years, GDP in the first quarter will dramatically increase to as much as 6%. Since chlorine reflects an estimated 2/3 of GDP, one could foresee a scenario of increased operating rates enabling producers a chlorine increase for April 1st, 2003. This scenario would also show slight softness or relief in its co-product caustic soda. Typically, caustic soda lags chlorine demand and therefore, one would believe we would see slight relief between the months of March and April. As caustic soda demand catches up to supply, K.A. Steel Chemicals believes we could see maximum operating rates for the months of June, July and August, and therefore, a potential caustic increase July 1st. B) It is K.A. Steel Chemical’s belief in this scenario that we may see a slight up tick in demand during the first quarter, but not near the historical highs we’ve seen in the past two years. With this scenario, we forecast a slight up tick for both chlorine and caustic April 1st, 2003, with another potential increase for caustic soda July 1st, 2003. Although the full increase did not adhere January 1st, the partial increase of $40 seems strong primarily due to the rising concern that natural gas may continue to climb to as much as $6 an MMBTU over the winter months. This increase in natural gas would represent approximately $60-$75 per ton on an ecu basis. KA Steel Chemicals will continue to monitor developments and keep you informed thru your sales representative. If you have any questions or comments, please feel free to call or email me at mikehurley@kasteelchemicals.com
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