Chinese caustic soda producers turn to exports

Chinese caustic soda producers are beginning to turn to external markets, in addition to making production cutbacks, to help manage the drop in downstream demand caused by the coronavirus outbreak.

Fixtures from China contributed to an Argus-assessed northeast Asia caustic soda export price range of $235-260/dmt fob in the past week. This was despite shipments of caustic soda from China being affected by logistics restrictions and a 14-day quarantine imposed on vessels with a last port of call in China. Trading firms and buyers have encountered difficulty securing vessel space for US west coast-bound routes because of a lack of backhaul cargoes, but these issues have not been insurmountable, particularly for cargoes not loading until March or later, by which time the situation is expected to have improved.

As a result, some coastal producers are diverting more cargoes into the export market as domestic consumption and recovery remain uncertain, with others also contemplating exports.

In other parts of northeast Asia supply positions remain mixed. Integrated producers have met some logistics constraints in moving vinyl cargoes into China, but this has been manageable without any obvious tightening of caustic soda supplies. But some of the main producers are more cautious and are focusing on satisfying existing commitments for March loadings before assessing additional spot business.

Only a few Chinese producers are able to export. Many chlor-alkali plants have reduced operating rates or shut down to stem excessive inventory build-up caused by slower downstream offtake. About 1.5mn dmt/yr of chlor-alkali production capacity has been shut down in Shandong, Hubei and Anhui provinces. Overall operating rates in east China and Shandong have dropped to 55-65pc.

Demand is starting to rebound, but remains weak. The halting of road transport has eased slightly in parts of China in the past week and the movement of caustic soda cargoes is smoother, but most downstream producers that stopped production in the early stages have not fully restarted. Demand for caustic soda remains weak in most provinces, with buyers adopting a mostly wait and see approach.

Supply chains in many downstream sectors have also been affected. Alumina production rates have shrunk to 75pc, while rayon production has dropped to 70pc. Production in other downstream sectors such as pulp and paper, textile printing, dyeing and chemical industries are also running at reduced rates.

The impact of the coronavirus outbreak in north, northwest and southwest China is less severe, but overall run rates have still dropped to around 70-75pc.

The operational cutbacks have helped to stabilise declines in domestic prices. Shandong prices edged up marginally in response to the logistics shutdown. The latest caustic soda contract prices to alumina producers were unchanged at 1,720 yuan/dmt ($245/dmt) ex-plant. Prices in north and southwest China have fallen, while prices in east China were flat.

Demand for liquid caustic soda feedstock for production of flakes has slowed significantly, as producers have been unable to move cargoes.

China's domestic merchant liquid chlorine markets remained stable as the logistics shutdown slowly eases. Mainstream prices in Shandong and north China were unchanged at Yn100-300/t ex-plant, with signs of falls in some other regions. Prices in east China were generally stable. Consumption of chlorine from derivative producers was slow, although demand is expected to recover in the short term as the logistics shutdowns ease.

By Bernard Law