Chlor-Alkali Production Curbed by Capacity Rationalization
October 11, 2022
Production levels of Chlor-Alkali chemicals (Caustic Soda, Chlorine, Sodium Hypochlorite, and Hydrochloric Acid) were near normal at the start of 2022. As the year has progressed, however, markets have seen a steady round of increases as multiple producers have shuttered thousands of tons of capacity.
Margin erosion is a primary motivator for this current trend of rationalizing capacity. Although new Chlor-Alkali plants and expansions are in the works, the rationalized capacity means that United States Caustic and Chlorine production is currently in a net decline. No new capacity is expected to come online before 2025-2026.
Meanwhile, for Caustic Soda, demand remains robust. Chlor-Alkali producers still export nearly 30% of total Sodium Hydroxide output. Some producers have turned to import Caustic to meet demand. With the energy crisis in Europe, however, they are unlikely to be a contributor of import Caustic Soda to the U.S. in the near future. The net result is a trade shift for European LCS to be used internally, with Asia or North America making up the shortfall in Europe.
Why the Current Chlor-Alkali Market is Unusual For Caustic Soda
Chlor-Alkali production is usually driven by demand for Chlorine. In the event of a downturn, Chlorine demand drops, as it is widely used to make PVC and other products that are volatile to economic fluctuations. Producers carefully adjust operating rates to be balanced to Chlorine demand. Chlorine and Caustic are produced in a ratio of approximately 1 ton of Chlorine to 1.1 tons of Caustic. In the event of a downturn in Chlorine demand, the resulting reduction in Caustic Soda supply will drive prices up. We saw this manifest dramatically following the ’08-’09 economic downturn.
Now, operating rates of remaining plants are high (Chlorine demand up), but Caustic prices are ALSO high. This unique situation raises questions about what would happen if an economic downturn were to occur now. Would Caustic prices go even higher in an already elevated market?
Caustic Soda imported from Europe was the lever that tipped the balance and reversed the runup in Caustic pricing in ’08-’09. With the lack of available imports from Europe, we simply cannot count on this in 2022.
…Our take? Barring some unexpected, drastic decline in Caustic demand, it’s unlikely that Caustic prices will see any significant decreases in the foreseeable future. Caustic Soda demand normally grows at a slow and steady 1-2%/year, concurrent with industrial growth.
As for the Chlorine derivatives (Sodium Hypochlorite and Hydrochloric Acid), we believe that the producers will continue to dial back operating rates to match demand, and it is unlikely that we will see pricing levels where they were historically.
While there is still ample capacity to meet Caustic and Chlorine demand in the U.S., continued issues with logistics can also be a constraint on getting product to market. Logistics issues will only really be resolved as more companies bring the service in-house, or the labor gap for drivers begins to be closed.
CORECHEM looks forward to supplying your Sodium Hydroxide, Bleach, and HCl needs! With questions about the current market, get in touch with a representative.