SINGAPORE--Tight global supply has pushed Asian caustic soda prices to historical highs but demand for the product showed few signs of slowing, producers and traders said on Wednesday.
The price of caustic soda was assessed at $530-550/tonne FOB (free-on-board) NE (northeast) Asia and $570-590/tonne CFR (cost and freight) SE (southeast) Asia late last week, a more than 86% increase since the start of the year, according to global chemical market intelligence service ICIS pricing.
This was the highest in at least 17 years, according to market players.
The only other time when prices were at a similar level was during the Gulf war when prices were at $500/tonne (CFR SE Asia). Now they are almost $600/tonne and still rising, said a trader based in Southeast Asia.
Prices surged due to a tight global situation caused by a combination of poor chlorine demand and a series of plant troubles in the US, industry sources said.
The sluggish construction sector in the US has slashed demand for chlorine derivatives, particularly polyvinyl chloride (PVC).
As chlorine and caustic soda are made using the manufacturing process, poor chlorine demand has limited the caustic soda production rate in the US, pushing chlor-alkali output to a two-year low in April.
A series of force majeures has further tightened supplies in the US. Three producers have announced such measures in the past two months alone while another is imposing sales control .
With most US caustic soda makers already on order control and struggling to meet contract obligations amid low production rates, US buyers have increasingly turned to Asia for their cargoes, helping to drive up prices as a result, market players said.
I think you can say that unless the US economy and chlorine demand starts recovering, caustic soda prices will continue to come under upward pressure because of the low operating rates in the US, a trader said.
The comment implied that caustic soda demand has been insulated from the economic woes affecting chlorine demand. This has appeared to hold true so far, industry players said.
Caustic soda prices in the US Gulf, which traders said is often an indication of the price direction in Asia, last week surged $80/tonne to $820-860/tonne FOB USG, creating a more than $300/tonne gap with northeast Asia export prices.
Second-half 2008 caustic soda contracts for alumina producers in Asia have also jumped by 67% over the price for first-half 2008 while caustic soda suppliers continue to note strong demand from the paper and textile industries.
Caustic soda is very basic raw material for many everyday products. People don t just stop using paper because the economy is down, a producer said.
Other market players, however, were quick to point out that caustic soda prices did tank during the economic recession in the early 2000s.
The difference between now and then was that the current economic downturn was perhaps not as severe while demand from emerging economies was helping to offset some of the US financial troubles, traders said.
Latin America, which imports huge quantities from the US, for example, has seen ex-tank prices of caustic soda at around $900/tonne currently.
It will be interesting to see exactly how far the emerging economies have decoupled from the US economy, a southeast Asian producer said.
If countries like Brazil and China are able to shrug off the economic problems in the US, caustic soda demand should remain relatively unscathed even in face of high prices, he added.
Dow Chemicals, Oxy and Solvay are among the world s top producers of caustic soda by capacity.
The paper and pulp industry is the largest consumer of caustic soda, followed by alumina and production of other chemicals.
The price of caustic soda was assessed at $530-550/tonne FOB (free-on-board) NE (northeast) Asia and $570-590/tonne CFR (cost and freight) SE (southeast) Asia late last week, a more than 86% increase since the start of the year, according to global chemical market intelligence service ICIS pricing.
This was the highest in at least 17 years, according to market players.
The only other time when prices were at a similar level was during the Gulf war when prices were at $500/tonne (CFR SE Asia). Now they are almost $600/tonne and still rising, said a trader based in Southeast Asia.
Prices surged due to a tight global situation caused by a combination of poor chlorine demand and a series of plant troubles in the US, industry sources said.
The sluggish construction sector in the US has slashed demand for chlorine derivatives, particularly polyvinyl chloride (PVC).
As chlorine and caustic soda are made using the manufacturing process, poor chlorine demand has limited the caustic soda production rate in the US, pushing chlor-alkali output to a two-year low in April.
A series of force majeures has further tightened supplies in the US. Three producers have announced such measures in the past two months alone while another is imposing sales control .
With most US caustic soda makers already on order control and struggling to meet contract obligations amid low production rates, US buyers have increasingly turned to Asia for their cargoes, helping to drive up prices as a result, market players said.
I think you can say that unless the US economy and chlorine demand starts recovering, caustic soda prices will continue to come under upward pressure because of the low operating rates in the US, a trader said.
The comment implied that caustic soda demand has been insulated from the economic woes affecting chlorine demand. This has appeared to hold true so far, industry players said.
Caustic soda prices in the US Gulf, which traders said is often an indication of the price direction in Asia, last week surged $80/tonne to $820-860/tonne FOB USG, creating a more than $300/tonne gap with northeast Asia export prices.
Second-half 2008 caustic soda contracts for alumina producers in Asia have also jumped by 67% over the price for first-half 2008 while caustic soda suppliers continue to note strong demand from the paper and textile industries.
Caustic soda is very basic raw material for many everyday products. People don t just stop using paper because the economy is down, a producer said.
Other market players, however, were quick to point out that caustic soda prices did tank during the economic recession in the early 2000s.
The difference between now and then was that the current economic downturn was perhaps not as severe while demand from emerging economies was helping to offset some of the US financial troubles, traders said.
Latin America, which imports huge quantities from the US, for example, has seen ex-tank prices of caustic soda at around $900/tonne currently.
It will be interesting to see exactly how far the emerging economies have decoupled from the US economy, a southeast Asian producer said.
If countries like Brazil and China are able to shrug off the economic problems in the US, caustic soda demand should remain relatively unscathed even in face of high prices, he added.
Dow Chemicals, Oxy and Solvay are among the world s top producers of caustic soda by capacity.
The paper and pulp industry is the largest consumer of caustic soda, followed by alumina and production of other chemicals.
