Top global chlor-alkali producer Olin expects US caustic soda exports to reach record levels in 2018 on strong global demand and reduced exports from China and Europe, CEO John Fischer said Wednesday.
"In 2017, caustic soda exports from the United States increased approximately 14% from 2016 volumes," Fischer said during the company's quarterly earnings call.
US caustic soda exports to Australia rose have risen to 1.2 million mt in 2017 from 533,278 mt in 2015, according to US International Trade Commission data, as US material increasingly filled a gap created as China reduced exports to keep more caustic soda in domestic markets amid strengthening margins. Exports to Brazil, the top destination for US caustic soda, have risen more than 52% since 2013 to 2.56 million mt last year, USITC data show.
Through February this year, shipments to Australia were 8% higher and those to Brazil 24% higher than in the first two months of 2017, the data show.
Last year European Union rules forced mercury-based chlor alkali plants in Europe to shut down or convert to less toxic production materials. By the end of 2017, about 665,000 mt, or 5.5% of Europe's chlorine capacity, had shut down while another 1.4 million mt had converted to other technology. Caustic soda is a by-product of chlorine production.
Chlorine mixed with ethylene makes ethylene dichloride (EDC), a precursor to polyvinyl chloride (PVC), a plastic largely used in construction for pipes, vinyl siding and window frames. Caustic soda is a key feedstock in alumina and pulp and paper industries.
The mercury-based plant closures in Europe left the region with less capacity to make chlorine for EDC production as well as caustic soda, leading to more EDC imports to maintain PVC output and reductions in caustic soda exports -- a gap the US can fill, Fischer said.
"The combination of the closure of the mercury-based chlor-alkali plants in Europe and no material chlor-alkali capacity additions expected in at least the next three years reinforces our view," he said.
Chlor-alkali producers throughout the world have been running their plants at high rates since early 2016 to capture high caustic soda margins, and prospects of continued pricing strength gives the industry little incentive to add capacity. In the US, only Shintech is considering more chlor-alkali capacity at its complex in Plaquemine, Louisiana - as part of a possible overall project adding capacity for EDC, vinyl chloride monomer and PVC as well. The company is seeking permits for the project, but has not formally announced plans to move ahead with it.
James Varilek, executive vice president of Olin, said Thursday that fundamentals of the chlor-alkali market -- including GDP growth and strong industrial production -- have not changed.
"We would expect that to continue for the next, actually for the next several years with those trends being positive," he said.
Fischer also said he expected weakness in EDC prices to linger amid strong chlor-alkali operating rates that produce chlorine that is used to make EDC, though its fundamentals should improve in "the next few years."
US EDC exports to some Asian countries have declined because they make more of their own with output aimed to capture caustic soda margins.
Varilek also said "not at all" when asked if Olin had seen its trade flows change because of China's proposed tariffs on 106 US products, including EDC, but not caustic soda. China announced the tariffs nearly a month ago in response to President Donald Trump's proposed import taxes on $50 billion in Chinese goods. China is the top destination for US EDC, receiving 27% of 1.3 million mt shipped out. China took 25% less US EDC compared to 2016.
China gave no timeline of when the tariffs would be imposed, and the proposed US tariffs cannot be imposed until later in May to allow time for public comment.
