div>HOUSTON -- Olin s declaration of a system-wide force majeure (FM) on chlor-alkali production will further aggravate the critically-tight global supply of caustic soda and push prices higher more quickly, industry participants said on Friday.
The announcement by the third largest US chlor-alkali producer on Thursday that it would suspend all US chlorine and caustic soda production indefinitely caught many in the industry off guard.
But other producers said the bright side for them was that the FM would probably clear the way for proposed contract price increases.
A source close to Olin said the Clayton, Missouri-based company s system of eight plants in the US and Canada was hit with several overlapping, unplanned outages during the past several weeks.
Although it was unclear which plants were affected, sources said the outages were caused by a mix of mechanical issues and inclement weather.
[Olin] is working feverishly to get all the plants back online. As soon as operations normalise, the force majeure declaration will be rescinded, a source close to the company said.
Although a statement released by Olin on Thursday also mentioned ongoing weak demand for chlorine as a factor in its decision, sources said Olin primarily made the declaration in order to reduce its contract allocation to 70% while its ability to produce caustic soda was hamstrung by plant outages.
Participants said the immediate effects of the FM on the US and Latin American caustic soda markets could be severe.
Olin is the third-largest chlor-alkali producer in the US after Dow Chemical and Occidental Chemical (OxyChem), and its annual production of about 175,000 tonnes/month (a little more than 2m tonnes/year) of caustic soda comprises about 13% of total US chlor-alkali output.
With caustic soda production already limited by a prolonged slump in demand for co-product chlorine, export spot prices are approaching record levels, according to global chemical market intelligence service ICIS pricing.
Moreover, producers said they were experiencing little resistance to proposed February caustic soda contract price hikes of $50-80/DST (dry short ton) ( 34-54/DST) even before Olin suspended production.
It s already tight, and there s no surplus material anywhere, one of Olin s competing producers said. We have already heard from some of [Olin s] customers, but we don t have enough supply to help them.
Sources said caustic soda export spot prices increased to $500-540/DMT (dry metric tonne) FOB (free on board) USG (US Gulf) this week, an increase of $70/DMT from a month ago. If implemented, the proposed February price hike would push contract prices to $520-570/DST, according to ICIS pricing.
Until improved chlorine demand gives producers an incentive to ramp up chlor-alkali production, sources said the global caustic soda supply crunch will continue to tighten, and prices would have no where to go but up.
US caustic soda producers include Dow Chemical, OxyChem, Olin, Formosa, Georgia Gulf, Bayer, and PPG.
($1 = EUR 0.68)
