Chlor-Alkali: Looking at clouded futures

Author Dhanish Kalayarasu, Chemicals Analyst and Alex Sands, Chemicals Editor

“There is no formula that will guarantee success in forecasting, no magic words that will part the clouds. The real problem…is that the future lies ahead.”

These were the words from Edgar Fiedler, American economist and author of “The Roots of Stagflation” in 1984 (a bit prescient for the current climate).

But forecasting is an essential aspect of business, science and everyday life. It is the art of making the most educated guess using the knowledge at hand both quantitative and qualitative. The industry has asked us to apply our expertise and methods to support that view into a clouded future and support business decision making. That is why we launched the Argus Chlor-Alkali Outlook service, and we are bringing transparency to our process by sharing our modelling and reference approach.

We first published Argus Chlor-alkali and Derivatives pricing report to the market in 2017, responding to industry requests for a credible, independent and reliable source of market prices for caustic soda and related products. Through the experienced founding team, we expanded our reach across our global markets and became a leading reference, adopted as an index used by many producers, consumers, traders, and distributors.

The value chain for chlor-alkali and related markets is complex and touches a vast portion of industry: from plastics to metals, food, pharmaceuticals, technology and transportation, to name just a few. That is why a forward view in caustic soda is so important and how we have been able to leverage our five years’ tenure in these markets to create a credible Argus Outlook service. It also comes at a time when volatility in markets has never been greater. Electricity prices — the major cost driver for the electrolysis process — have surged, tracking volatile upstream natural gas, oil and coal markets. Demand for caustic soda and chlorine has been volatile.  And the energy transition and net zero goals are transforming industries, including the production of battery materials, which is emerging as a major driver of growth in caustic soda consumption.

On the production side, Argus uses the latest information and outlooks on electricity and upstream oil, natural gas and coal markets, as well as an experienced analytics team that has developed costs models and forecasts. Coverage of the ethylene and PVC markets brings insights into demand and costs for the major chlorine consumers. Our metals team tracks key caustic soda consuming companies, such as in the aluminium and emerging battery material markets.

Just as establishing and publishing freely a detailed methodology was an essential part of giving clients confidence in our market price assessments, providing a clear refence and modelling guide to how we produce the caustic soda price forecasts in our new Chlor-alkali Outlook. Allowing everyone to understand the basis of the assumptions and approach we use to establishing our outlook is fundamentally important. The full details of these can be found in our publicly available Chlor-alkali Outlook Reference and Modelling Guide.

Our model assumes a few variables based on industrial standard data, which includes plant capacity, capex cost and fixed cost that also takes into account inflation adjustment. This allows standardisation in the cash cost modelling for caustic soda depending on each individual region. Margin modelling also takes place and will soon be added to the service. We have chosen the most appropriate outlook prices from forward markets, Argus’s public outlook prices and from other internal forecasts – all outlined in the modelling and reference guide. We will keep these under review, with a commitment to communicate updates promptly and consult on major methodological changes.

The other major component of our process lies in the insight from our subject matter experts in each of the major regions. The team specialises in keeping up to date with the market and ensures quality data is fed to the analytics team. The team communicates with industry participants every week, gathering information and understanding on the current market and prevailing issues, opportunities and trends. These may include, but are not limited to, new plant capacities, plant shutdowns, planned and unplanned maintenance, demand variations, and current and anticipated trade flows between regions.

The two elements of modelling and subject matter expertise work hand-in-hand. To draw on Fiedler’s words, we cannot fully part the clouds and see perfectly into the future. But we can provide some light in that direction.

To find out more about the Argus Chlor-Alkali Outlook, watch a product demo, listen to a market outlook podcast or request a free trial, visit: https://view.argusmedia.com/chlor-alkali-outlook.

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