VINACHEM

Spot caustic soda prices in Asia are on a strong upward momentum on the back of stable demand and tight supply, but the pace of gains may slow down in December, market sources said on Wednesday.

There might be a brief respite next month going into the year end holidays, before prices rise again ahead of the earlier-than-usual Lunar New Year holiday on 28 January, they said. The holiday is celebrated in most parts of northeast and southeast Asia.

Caustic soda prices were last assessed on 11 November at $380-385/dry metric tonnes (dmt) FOB (free on board) NE (northeast) Asia, higher by $10/dmt from the previous week, according to ICIS data. Prices are currently at levels not seen since December 2012.

Most producers in China - a major exporter of caustic soda – have refrained from offering December-loading cargoes to the international market last week amid stronger prices in the domestic market.

A combination of strong demand, low output and limited transportation capacity has tightened China’s caustic soda inventories, boosting domestic prices for the material.

“On an export parity basis, domestic Chinese prices are at $450-480/dmt,” a Chinese trader said.

But caustic soda production is being hampered by weak demand for its co-product chlorine. Chlorine and caustic soda are produced at a ratio of 1:1.1 via the chlor-alkali process.

Chlorine derivatives markets are doing poorly, with some plants in northern China unable to operate amid ongoing environmental inspections, forcing buyers to cut back on purchases. Sellers were practically giving away chlorine to get rid of their inventories, market sources said.

Across China, the overall supply of caustic soda was tight as a number of producers were operating their facilities at reduced capacity.

Demand was stable-to-robust, depending on industry and region, lending support to stable-to-firmer prices, further discouraging many Chinese producers from offering export volumes.

Major South Korean producers said last week that they would likely have no spot December-lifting volumes to offer either due to low inventories, or lowered operating rates at their facilities.

Japanese producers, meanwhile, did not have any early-December lifting cargoes to offer this week. However, northeast Asia traders expected a few cargoes from the country to be offered in the coming weeks.

Available supply in NE Asia, however, may not be able to meet demand from India, southeast Asia and the US West Coast, market sources said.

Southeast Asia is a net importer of caustic soda, but a producer in a region has started selling export cargoes for November and December loading to the spot market.

“With caustic soda spot prices at such attractive levels, we will like to export as much as possible,” said a source at the southeast Asian producer, which has one more December-lifting cargo to offer.

Demand from southeast Asia was robust this week, especially in the Philippines, Singapore and Thailand.

Buyers in Malaysia and Indonesia had only recently fulfilled their November-lifting requirements and have remained on the sidelines, observing the current market in order to better ascertain their best point of entry for December volumes.

Some buyers in the Philippines and Singapore were heard to be have depleted inventories as they did not purchase any November-loading cargoes, deeming the prices too high.

Demand in Thailand was expected to pick up due to the start of the sugarcane season in December, with some buyers eager to secure cargoes early.

In addition, chlor-alkali producers in Thailand were reportedly in the midst of balancing their chlorine inventories, hence, producing less caustic soda. These factors drove up domestic prices, leading to a healthy import appetite.

A southeast Asia fixture was reported last week at $420/dmt CFR SE Asia, while a southeast Asia deal was heard done the week before at $415/dmt CFR SE Asia. Latest bid and offer were heard at $420/dmt CFR SE Asia and $425/dmt CFR SE Asia, respectively. - ICIS