Caustic soda demand to fall on more aluminium cuts – US Alcoa

HOUSTON (ICIS)–Global demand for caustic soda will drop because customers will likely cut alumina and aluminium production in the coming weeks, executives at US-based metal producer Alcoa said on Wednesday.

The Alcoa executives are in Houston this week to ask caustic soda producers to give them some relief from rising prices.

Alcoa estimates that around 85kg of caustic soda is used in the production of each 1 tonne of alumina, from which aluminium is made.

As little as $10-20/tonne is the difference between profitability and making a loss at some smelters, one of the executives said. He declined to make an exact estimate of caustic soda’s share of production costs, but said it was in double digits as a percentage.

The US caustic soda contract price for November settled at $445-470 dry short ton (€347-366/DST), level with October but up 128% from the start of 2011. 

Capacity shutdowns in the global alumina industry erased around 260,000 tonnes of caustic soda demand in the second half of 2011, according to Alcoa.

“We have an industry that is broken,” Mark Chrisman, the company’s global director for strategic raw materials, said to ICIS.

On Monday, Alcoa announced a loss from continuing operations of $193m in the fourth quarter, caused by charges associated with the scaling back and closing high-cost production, lower aluminium prices and continued market weakness.

That compounded a loss of $172m in the third quarter and compared with a profit of $258m in the fourth quarter of 2010.

As well higher costs, aluminium profits have been slashed by falling prices for the metal. On the London Metal Exchange, the cash price for aluminium this week was around $2,137/tonne, down 22% from a peak of around $2,750 in the first half of 2011.

There is also a “staggering” global overhang of 9m tonnes of aluminium supply, approaching 20% of annual demand of around 50m tonnes, Chrisman said.

With demand for aluminium dormant in Europe and the Chinese economy slowing, aluminium producers will be shutting down more facilities across the globe in the coming year.

Chrisman said the raw materials side of aluminium production must make a pricing transformation so that the aluminium production industry can “get back to a reasonable financial foundation”.

Unless that happens, Chrisman and the others warned, the bottom could drop out of caustic soda demand as it did during the 2008-2009 financial crisis.

“It’s a matter of survival for us, for Alcoa and the industry,” he said.

Also on Monday, Alcoa announced that it intends to curtail operations at an aluminium smelter in Italy and two others in Spain. Those facilities are among the highest-cost producers in Alcoa’s system, the company said.

Last week, the company announced the permanent closure of its smelters in the town of Alcoa, Tennessee, and two potlines at its Rockdale, Texas, smelter.

Altogether, the European and US shutdowns amount to 531,000 tonnes – or 12% – of Alcoa’s system smelting capacity

Additional reporting by Stephen Burns

($1 = €0.78)

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