OUTLOOK ’19: European caustic soda markets may take different paths in 2019

LONDON (ICIS)–The European caustic soda markets face contrasting trends in 2019 as the domestic and worldwide situations have diverged significantly.

Domestic production and availability from European producers may remain at the same level of tightness, or even tighten further in early 2019, due to lower utilisation rates and production in the market.

Initial expectations for first-quarter caustic soda contract are stable to firm as a result of the balanced or slightly tight domestic market in Europe.

Quarterly prices in Europe tend to feel the most limited impact via imports, compared to other caustic soda prices not settled quarterly.

Import availability is likely to remain healthy through the first quarter of 2019, with US prices falling significantly in the last weeks of 2018.

The Alunorde alumina refinery in Brazil was at the time of writing continuing to operate at below-regular capacity, and the Asian market remained long.

There are likely to be headwinds for demand because of uncertainty caused by the global trade situation, which has created negative consequences for a number of different chemical markets.

However, this is likely to have a significant impact on chlorine derivatives, which could disproportionately decrease caustic soda production compared to a potential demand decrease.

The latest Eurochlor figures showed a downtrend in chloralkali production late in the third quarter and the beginning of the fourth quarter of 2018 due in part to lower capacity compared to most of 2017.

Source: Eurochlor

However, import availability seems likely to remain healthy in coming months, with price trends suggesting that the Mediterranean remains well supplied.

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Caustic soda export spot prices reached a peak in late 2017 and crashed in 2018, particularly in the Mediterranean.

There was certain amount of realignment in contract prices, which peaked in the first quarter of 2018 and then fell between the second and the fourth quarter, according to the ICIS assessment.

The average price for quarterly assessment decreased by almost 5% from €720/dmt (dry metric tonnes) FD (free delivered) NWE (northwest Europe) to €685/dmt FD NWE.

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The Iberian market also posted significant decreases, with the monthly contract price assessment average falling from €825/dmt FD Iberia to €682.5/dmt FD Iberia between January and November 2018, a decrease of more than 17%.

The European contract market is served for the most part by domestic producers and is less impacted by global trends than the free on board (FOB) export market.

In the Mediterranean, availability has been healthy as a result of strong supply from several different sources including the Ukraine, with Karpatneftekhim producing through the year, and the longer Asian market in the fourth quarter of 2018.

Monthly contract prices in Italy also registered a downward trend in December, according to some sources, as a result of higher availability via imports than the majority of markets.

PRODUCTION
In early 2018, caustic soda and chlorine production was not greatly changed compared to 2017 as utilisation rates at European plants reached levels not seen since the height of PVC demand in 2007, which compensated for the closure of capacity in the previous year.

However, later in 2018 the market began to register lower utilisation rates for chlorine and caustic soda production, which also reduced overall chlorine and caustic soda production in Europe.

Chlorine is a co-product of caustic soda and is used here as a proxy for caustic soda production. Source: Eurochlor 

Caustic soda stocks also saw an abrupt downward shift in October, putting them significantly below average levels for the first time in 2018.

Caustic soda stocks fell to more than 10% below average levels for the first time for 2018 in October (Eurochlor figures)

The decrease in production was attributed in some quarters to lower demand for chlorine derivatives such as PVC.

However, low European caustic soda prices are also moderately strongly correlated with lower chlorine/caustic soda production, and they trended downwards overall throughout 2018.

Focus article by Chris Barker

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