Announcements
03/14/11 - Market Analysis: Japan Earthquake
Our hearts and prayers go out to the people of Japan.
Overview:
On Friday, March 11th an earthquake of 8.9 magnitude struck Japan triggering a massive tsunami on Japan's eastern shores. As news reports developed over the weekend it is clear this tragedy is of enormous proportions. It is reported that Japan has 17 nuclear power facilities of which 55 units are operational making up 1/3 of Japans power. As the weekend unfolds at least 3 of these units are in a severe state of emergency. Its infrastructure is totally destroyed on the eastern border with over 6 million people without power and thousands of people feared dead throughout Japan. Whole trains as well as cities are missing. Many, if not all chemical plants have shut down. The earth's rotational spin actually sped up and the Japanese coast shifted by 8 feet. We will monitor closely as developments occur.
Japan exports an estimated 700,000 dmt of caustic soda, and of this quantity, over 500,000 dmt of material is exported to Australia. My concern today from a logistics stand point is the effect on Australia as well as other traditional customers or countries looking elsewhere for caustic soda in an already snug market as well as cl2 derivatives and the inability of Japan to fulfill their former obligations under this catastrophe. With much of their rail system destroyed, and ports in dire need of repair we question Japan's short term opportunity to export much of anything. We understand that ethylene has been dramatically curtailed and productions of PVC, as well as many other resins, are in short supply. I'm confident the short term opportunities from the gulf as well as other regions must be factored into the forecast for the immediate future.
KA Steel Chemicals will monitor to the best of our ability the overall impact of this monstrosity on the global commodity market. Already caustic soda inquiries out of China have bumped up to levels between $350 -$360 pdmt F.O.B..
KA Steel's overall forecast prior to this calamity was caustic soda to be snug to tight through April with the "possibility" of some wiggle room as producers crank up cl2 for bleach season. This forecast began changing as the "Middle East' went up for grabs. Oil began to rise and the difference between natural gas and oil grew further apart allowing us more of an "energy advantage" over most of the world allowing us to ship caustic soda to geographies less traditionally ours. This lowered inventory and created a "discipline" amongst the producers due to the logistic discipline needed to export. Any one producer preparing to export a parcel of 20,000 dmt must be disciplined enough to build inventory way in advance to prepare for the vessel coming in a week early or a week late so as not to pay the huge penalties occurred through demurrage of these ships. Exports are up about 19% and opportunities continue to grow.
Integrated domestic producers continue to enjoy healthy margins on ethylene as well as chlor alkali whereas the Chinese are limited on their ECU margins. I fully expect the margins on caustic soda out of Asia to rise with the most recent Japanese developments. Overall this makes the latest domestic increase on caustic soda as well as cl2 much more credible than 2 weeks ago.
