New US sanctions on Russian companies could further erode export demand for US caustic soda already affected by a Brazilian alumina refinery forced to run at half its capacity as regulators investigate possible river contamination, sources said Monday.
A dozen Russian companies that face US sanctions imposed last week include United Company Rusal, one of the world's largest aluminum producers.
The US also imposed sanctions on 17 senior Russian government officials and seven Russian oligarchs, including Rusal's former president, Oleg Deripaska.
Rusal is a major buyer of US caustic soda, a key feedstock in the alumina industry. Specifically, Rusal typically buys about 300,000 mt/year of US caustic soda, US market sources said.
Rusal operates seven alumina refineries with a combined capacity of 10.5 million mt/year in Russia, Ireland, Italy, the Republic of Guinea and Jamaica, according to the company's website.
The sanctions prevent Rusal from sourcing caustic soda from the US. "This is going to create some change in the trade flow," a trader source said.
The US already was facing an indefinite decline in caustic soda export demand after Brazilian environmental regulators ordered Norsk Hydro to cut production rates by half at the company's alumina refinery -- the world's largest -- in Alunorte.
In late February, the environment office of Brazil's Para state told the refinery to reduce output by 50% after extreme rainfall in mid-February swamped the region, leading to possible leaks from bauxite residue deposits.
Norsk Hydro typically sources 50,000 mt/month -- or 600,000 mt/year -- of US caustic soda to feed the Alunorte refinery. The rate reduction cut that demand to 25,000 mt/month, or 300,000 mt/year.
However, the Alunorte issue emerged as Olin, the largest global chlor-alkali producer, began turnarounds at chlor-alkali plants in Texas and Louisiana in early March. That planned work has wrapped up with Alunorte still at half rates and new sanctions imposed on Rusal.
The Rusal and Alunorte issues combined potentially reduce US caustic soda export demand by 600,000 mt/year as long as Alunorte remains at half rates, market sources said. Together, those issues "will cause a lot of problems," a source said.
Both Rusal and Alunorte buy diaphragm-grade caustic soda, which contains higher levels of impurities such as salt and iron than membrane-grade. OxyChem, Olin and Westlake Chemical produce both grades, while Formosa Plastics and Shintech produce only membrane-grade.
Sources said diaphragm-grade has fewer destinations than more widely used membrane-grade, so the Rusal and Alunorte issues reduce an already smaller demand base.
On Monday, Norsk Hydro said an independent review by a Brazilian environmental consultancy showed no overflow from bauxite residue deposit areas during the February flooding.
CEO Svein Richard Brandtzaeg also said during a webcast presentation on Monday of those results that the company intends to increase water treatment capacity by 50% and water treatment basin capacity by 150%. He said the company also will upgrade equipment and strengthen collection, testing, analysis and monitoring of environmental and health data.
The company also remains in talks with state and federal environmental regulators on when the refinery can resume normal rates.
