Caustic Soda (sodium hydroxide)      

*Thousands of short tons per year of caustic soda (100 percent NaOH basis). Nearly all caustic soda is generated by the electrolysis of sodium chloride solution using one of three cell types: mercury, diaphragm or membrane. The electrolysis process produces 1.1 ton of 50 percent caustic soda with each ton of chlorine.

In the last decade there has been a trend of conversion from mercury or diaphragm-cell technologies to membrane-cell technology. This conversion has slowed in the past two years, as depressed margins have prompted producers to scale back investments. Membrane-cell technology is the low cost technology because of superior electrical efficiency.

Nearly all caustic is produced as 50 percent aqueous solution. Less than 2 percent is produced in the solid, anhydrous form.

Equapac Inc. (Santa Ana, Calif.) announced last month it intends to construct a chloralkali facility at Weyerhaeuser's kraft pulp mill in Longview, Wash. The plant is scheduled for operation by mid-2005 with an annual caustic soda capacity of 85 thousand tons.

Last year Dow Chemical shut down 210 thousand tons of old caustic soda diaphragm capacity in Plaquemine, La. The company has a project in the works to add another 285 thousand tons of caustic soda membrane capacity by the end of next year. Last December it also closed roughly 150 thousand tons, or about 20 percent of capacity at its Ft. Saskatchewan, Canada, facility.

OxyVinyls is a joint venture company between Occidental Chemical Corporation and PolyOne Corporation, with ownership shared between Occidental and PolyOne on a 76 percent and 24 percent basis, respectively. Sunbelt Chloralkali is a 50:50 joint venture between PolyOne and Olin Corporation.

In June 2000, Occidental Chemical and Olin announced a plan to merge their chloralkali businesses by the end of that year. Three months later, however, a second announcement stated that partnership negotiations had been discontinued primarily because of regulatory issues. Together, their facilities made up roughly 30 percent of US chloralkali capacity.

Vulcan/Mitsui is a joint venture with Vulcan Chemicals owning 51 percent and Mitsui & Co. holding 49 percent. The JV began production at the new chloralkali plant in 2000, located on Vulcan’s Geismar, La. site. The plant has an annual capacity of 240 thousand tons of caustic soda.

Over the past two years, there have been 7 plant closures, temporary and permanent, which removed 1,450 thousand tons of capacity from the marketplace, due to adverse market conditions. This represents about 10 percent of the US installed capacity. In March 2002, Pioneer Americas idled 250 thousand tons of capacity at Tacoma, Wash. The plant had been operating at half capacity since the year before. In December 2001, OxyVinyls idled 470 thousand tons of caustic soda capacity at Deer Park, Tex. In April 2001, Atofina Chemicals idled 120 thousand tons of capacity at Portland, Ore. In February 2001, LaRoche Industries idled 100 thousand tons of capacity at Gramercy, La. and Occidental Chemical idled 435 thousand tons of capacity at Convent, La. In September 2000 HoltraChem Manufacturing permanently shuttered two plants with a combined capacity of 75 thousand tons in Reigelwood, N.C. and Orrington, Me.

Profile last published 9/11/00; this revision 6/9/03.

DEMAND

2001: 12,250 thousand short tons; 2002: 12,460 thousand short tons; 2006: 13,175 thousand short tons, projected. Demand equals production plus imports (2001: 673 thousand short tons; 2002: 585 thousand short tons) less exports (2001: 1,785 thousand short tons; 2002: 1,555 thousand short tons).

GROWTH

Historical (1997 - 2002): -1.5 (negative) percent per year; future: 1.4 percent per year through 2006.

PRICE

Historical (1997 - 2002): High, $290 per ton, liq. 50 percent, sellers tanks. f.o.b. Gulf Coast, frt. equald., list; low, $95, same basis. Current contract pricing: $175 to $195. Current spot pricing: $165 to $180 per ton.

USES

Direct application, 54 percent (pulp and paper, 24 percent; soaps and detergents, 10 percent; alumina, 6 percent; petroleum, 7 percent; textiles, 5 percent; water treatment, 5 percent; miscellaneous, 43 percent); organic chemicals, 35 percent (propylene oxide, 23 percent; polycarbonate, 5 percent; ethyleneamines, 3 percent; epoxy resins, 3 percent; miscellaneous, 66 percent); inorganic chemicals, 11 percent (sodium/calcium hypochlorite, 24 percent; sulfur-containing compounds, 14 percent; sodium cyanide, 10 percent; miscellaneous, 52 percent).

STRENGTH

Demand for caustic soda in chemical production is strong led by propylene oxide, polycarbonates and epoxies in the organics sector and calcium hypochlorite, sulfur chemicals and titanium dioxide among the inorganics. Direct applications, which account for more than half of the total caustic market, are steady. The recovery of the pulp and paper industry is one of the main drivers for caustic soda. In 2003, the pulp and paper industry is expected to grow 1 percent over 2002, which itself was up 1.7 percent over year 2001.

WEAKNESS

The erosion in caustic soda pricing last year came after chlorine and caustic soda fell out of phase because of a surge in chlorine demand, led by strong demand for chlorine derivatives, particularly ethylene dichloride (EDC) and vinyl chloride (VCM). This has been somewhat mitigated by the idling of 1,450 thousand tons of caustic soda capacity during the past two years.

OUTLOOK

The chloralkali manufacturers’ effective operating rate during the first quarter of this year averaged 93 percent, compared to about 88 percent for the first quarter of 2002. The market at this time is balanced, helped in part with the idling of nearly 10 percent of industry capacity over the past two years, and also because chlorine and caustic soda have been performing in tandem lately. With the improving US economy, it is likely that chlorine’s growth will out-perform caustic soda’s later this year and throughout 2004, thereby causing the caustic market to go long with attendant soft prices. Growth for caustic soda over the forecast period is projected to be 1.4 percent per annum.

HISTORICAL DATA