SINGAPORE--Asian caustic soda prices fell by almost 12% in the past month on high inventory and weaker demand but traders and producers said on Wednesday that they were cautiously optimistic a sharp prolonged downturn was not on the cards.
Exports from northeast Asia were last week assessed at $510-550/tonne FOB (free on board) NE Asia (northeast Asia), a $70/tonne drop from the $600/tonne record high reached just four weeks ago.
Prices have been on a general uptrend prior to this fall, and have more than doubled since January.
It used to be a sellers market. But now, we have traders coming to us offering cargoes, a caustic soda buyer said.
Several factors accounted for this reversal, industry sources said.
The first was the high inventory levels heard among several buyers.
Customers have requested deferring part of their term liftings in recent weeks while several buyers have said they need not purchase any spot cargoes in September, traders and producers said.
Domestic Chinese demand has also softened in recent weeks, in part due to a slowdown in aluminium demand growth. Supplies not soaked up domestically might have ended up in the export market as a result, they added
Chinese Customs data showed that 217,300 tonnes of liquid caustic soda were exported in July - almost double the volume shipped in June and a 67% increase year-on-year.
The rush to beat the start of Olympics-related shipping restrictions however might have amplified this spike, a Chinese producer said.
A similar decline in demand was heard in southeast Asia with the textile sector particularly hard hit.
Indonesian textile plants have slashed their operating hours in the face of persistent electricity shortages while Singapore s July textile production has fallen by 2% year-on-year, according to official statistics from the island state.
Finally, surging caustic soda prices in the first half of this year have attracted chlor-alkali producers to ramp up their operating rates, easing the acute supply tightness seen early this year, industry sources said.
US caustic soda production, languishing at a two-year low of 84% in April, rebounded to 94% by July despite subdued demand for chlorine derivatives.
Given the gloomy economic climate, however, chlor-alkali producers might not be able to sustain such high operating rates for long, industry sources noted.
Demand for chlorine products, especially PVC (polyvinyl chloride), remains weak due to economic problems in the US. Producers cannot afford to run at high rates when the chlorine netback is so poor and caustic soda prices are falling, a trader said.
As caustic soda production would be capped by poor chlorine demand in the foreseeable future, a prolonged, sharp fall in caustic prices appeared unlikely barring a drastic drop in demand, the trader added.
Caustic soda values were also holding up in the US and contract prices could rise by almost $300/dst (dry short ton) in July and August amid tight supply conditions.
This was likely to keep open the Asia-to-US arbitrage window that has seen an average flow of more than 100,000 tonnes/month so far this year, helping to provide strong support for Asia caustic soda prices, producers said.
Some other industry sources, however, were less certain.
They cautioned that caustic prices might still slide further given the manner of its rise earlier this year. Though lacking the financial sophistication of its crude oil counterpart, talk of speculative excesses had nonetheless dogged the caustic soda market.
It took five months for prices to go from $300 to $400/tonne (FOB NE Asia) but less than two months to go from $500/tonne to $600/tonne. I think some players have been talking up prices and the market is now undergoing some correction, a southeast Asian producer said.
The depth of this correction would depend on how well suppliers can balance their inventories, the source added. If producers can control their inventory levels, prices will probably stay around $500/tonne (FOB NE Asia), he said.
Furthermore, with the lifting of Olympics-related logistical restrictions, more Chinese producers are looking to grab a slice of the export business.
One supplier was heard to be looking to export another 10,000 tonnes/month. This would make the export market even more competitive, exerting downward pressure on prices, a producer said.
Exports from northeast Asia were last week assessed at $510-550/tonne FOB (free on board) NE Asia (northeast Asia), a $70/tonne drop from the $600/tonne record high reached just four weeks ago.
Prices have been on a general uptrend prior to this fall, and have more than doubled since January.
It used to be a sellers market. But now, we have traders coming to us offering cargoes, a caustic soda buyer said.
Several factors accounted for this reversal, industry sources said.
The first was the high inventory levels heard among several buyers.
Customers have requested deferring part of their term liftings in recent weeks while several buyers have said they need not purchase any spot cargoes in September, traders and producers said.
Domestic Chinese demand has also softened in recent weeks, in part due to a slowdown in aluminium demand growth. Supplies not soaked up domestically might have ended up in the export market as a result, they added
Chinese Customs data showed that 217,300 tonnes of liquid caustic soda were exported in July - almost double the volume shipped in June and a 67% increase year-on-year.
The rush to beat the start of Olympics-related shipping restrictions however might have amplified this spike, a Chinese producer said.
A similar decline in demand was heard in southeast Asia with the textile sector particularly hard hit.
Indonesian textile plants have slashed their operating hours in the face of persistent electricity shortages while Singapore s July textile production has fallen by 2% year-on-year, according to official statistics from the island state.
Finally, surging caustic soda prices in the first half of this year have attracted chlor-alkali producers to ramp up their operating rates, easing the acute supply tightness seen early this year, industry sources said.
US caustic soda production, languishing at a two-year low of 84% in April, rebounded to 94% by July despite subdued demand for chlorine derivatives.
Given the gloomy economic climate, however, chlor-alkali producers might not be able to sustain such high operating rates for long, industry sources noted.
Demand for chlorine products, especially PVC (polyvinyl chloride), remains weak due to economic problems in the US. Producers cannot afford to run at high rates when the chlorine netback is so poor and caustic soda prices are falling, a trader said.
As caustic soda production would be capped by poor chlorine demand in the foreseeable future, a prolonged, sharp fall in caustic prices appeared unlikely barring a drastic drop in demand, the trader added.
Caustic soda values were also holding up in the US and contract prices could rise by almost $300/dst (dry short ton) in July and August amid tight supply conditions.
This was likely to keep open the Asia-to-US arbitrage window that has seen an average flow of more than 100,000 tonnes/month so far this year, helping to provide strong support for Asia caustic soda prices, producers said.
Some other industry sources, however, were less certain.
They cautioned that caustic prices might still slide further given the manner of its rise earlier this year. Though lacking the financial sophistication of its crude oil counterpart, talk of speculative excesses had nonetheless dogged the caustic soda market.
It took five months for prices to go from $300 to $400/tonne (FOB NE Asia) but less than two months to go from $500/tonne to $600/tonne. I think some players have been talking up prices and the market is now undergoing some correction, a southeast Asian producer said.
The depth of this correction would depend on how well suppliers can balance their inventories, the source added. If producers can control their inventory levels, prices will probably stay around $500/tonne (FOB NE Asia), he said.
Furthermore, with the lifting of Olympics-related logistical restrictions, more Chinese producers are looking to grab a slice of the export business.
One supplier was heard to be looking to export another 10,000 tonnes/month. This would make the export market even more competitive, exerting downward pressure on prices, a producer said.
