Uses

Globally, the the top five end-use industries of caustic soda are alumina, organic chemicals production, textiles and detergents, pulp and paper and inorganic chemical production.

Major alumina refiners are concentrated in Asia, with countries such as China, Australia, India, Indonesia, Vietnam, and the Philippines all having major alumina producers.

Supply/demand

Caustic soda is produced as a co-product of chlorine through the electrolysis of brine.

Chlorine’s main derivative polyvinyl chloride (PVC) sees different end-usage in applications such as pipes and profiles, in the construction industry, and for medical devices.

The northeast Asian region is a net exporter of caustic soda to Australia, southeast Asia and the US West Coast.

China has the largest caustic soda production capacity in the world compared to any other country or region, with almost half of global capacity.

Caustic soda demand typically grows at a similar rate to industrial economic growth - slowly and steadily.

Nevertheless, regional caustic soda consumption, especially from the downstream alumina sector, has been improving at faster rates in 2021 compared with last year, as countries in the Asia Pacific recovered from the worst of the coronavirus pandemic in 2020.

Australia remains a prominent buyer of caustic soda due to the presence of multiple alumina refineries. It has been sourcing cargoes both from northeast Asia and the US Gulf.

Indonesia’s caustic soda consumption has grown due to start-ups of several alumina refiners in late 2020, as well as a nickel and cobalt smelting project in mid-2021.

Prices

While demand in early 2021 was initially suppressed in southeast Asia due to the high number of Delta variant coronavirus infections, caustic soda prices in Asia have nevertheless seen a general uptrend for much of the year amid slimmer-than-expected supply.

Several technical issues in Japan have curtailed output since June, while China’s stringent enforcement of its dual control policy in late September resulted in production cutbacks that had ripple effects throughout the region. With limited spot availability from the above mentioned countries, most buyers had to procure from a smaller pool of suppliers.

Global supply dynamics were also affected by US production issues arising from Hurricane Ida in September.

On the demand side, consumption has mostly improved compared with the previous year, particularly from the downstream alumina sector, driven by high alumina as well as end-product aluminium prices.

Technology

Nearly all caustic soda is generated by the electrolysis of sodium chloride solution using mercury, diaphragm or membrane cells. For every one tonne of chlorine, 1.1 tonnes of 100% caustic soda is generated.

In Asia, the dominant technology is membrane cells, followed by diaphragm cells and lastly mercury cells. Membrane cells hold many advantages over the other cells, including being the most cost competitive, one of the most environmentally friendly and having the ability to produce highly concentrated caustic soda.

Future chlor-alkali projects in Asia will most likely be of the membrane cell process.

Outlook

Market participants hold a generally optimistic outlook for caustic soda in the Asia Pacific region. Consumption is expected to remain supported in Indonesia by potential alumina refiners’ expansions.

Demand from other sectors in southeast Asia is expected to improve as many countries in the region have eased pandemic-related restrictions which have stifled downstream demand. Some restocking activity is subsequently expected from Vietnam, following the lifting of its coronavirus-related restrictions in Ho Chi Minh city on 30 September.

There is some uncertainty on whether Chinese authorities would ease restrictions on chlor-alkali producers affected by the dual control policy. Doing so would likely bring some relief to the region’s tight supply conditions.

India’s domestic capacity has grown in recent years, and some producers in the South Asian country are looking to export. With most expansion projects have taking place in West India, caustic soda exports flowing out of India would likely be to Africa.

Meanwhile, most integrated chlor-alkali producers in the wider Asian region are expected to keep operating rates as high as possible, given favourable margins for both caustic soda and chlorine. ■