Caustic Soda Capacity Expands Unduly

By Li Jingfan

The capacity of caustic soda in the world is 62.15 million t/a
today. The output of caustic soda was 51.26 million tons and the
operating rate was 82.5% in 2005. A capacity of around 2.0
million t/a in the world was shut down in the years from 2001
to 2004. The capacity of caustic soda in Asia, especially in
China, has expanded rapidly in recent years, making up for the
output reduction in other regions. The total capacity of caustic
soda in the world is therefore still increasing stably. China
has already become one of the largest chlor-alkali producer and
consumer in the world.

Review in 2005

    (1) Production

China has more than 220 caustic soda producers today with a
capacity of 16.10 million t/a. The output was 12.3998 million
tons in 2005, an increase of 21.4% over 2004. Of the total, the
output of ion-membrane caustic soda was 3.6562 million tons, an
increase of 32% and the processing amount of solid caustic soda
and flake caustic soda was around 700 thousand tons. The export
amount was 854 thousand tons, the import amount was 48 thousand
tons, the apparent consumption was 11.593 million tons and the
ratio between output and apparent consumption was 107%.
Provinces with a large output amount of caustic soda include
Shandong province, Jiangsu province and Tianjin. Top 10
producers in terms of output include Sinopec Qilu Petrochemical
Co., Ltd., Shanghai Chlor-Alkali Chemical Co., Ltd., Tianjin
Dagu Chemical Co., Ltd., Jinhua Chemical Group Co., Ltd., Juhua
Group, Tianjin Botian Chemical Co., Ltd, Shandong Hengtong
Chemical Co., Ltd., Jiangsu Jiangdong Chemical Co., Ltd., Yibin
Tianyuan Co., Ltd. and Sichuan Jinlu Group Co., Ltd.
   There are 6 producers with a capacity of over 300 thousand
t/a, 4 producers with a capacity of 200 thousand - 300 thousand
t/a and 27 producers with a capacity of 100 thousand - 200
thousand t/a. The average capacity in producers is around 60
thousand t/a.
   The output in 2005 increased in some producers with a capacity
of over 100 thousand t/a but had some reduction in others.

    (2) Consumption

Due to the difference in downstream consumption sectors,
consumption proportions of caustic soda in various regions are
widely different.   

    (3) Market

The price of caustic soda in the domestic market fluctuated
slightly from January to February 2005. The demand of caustic
soda in downstream sectors was increased after March and the
seasonal demand increase triggered a synchronous price rise. The
price of caustic soda in some areas of the south had a small
rebound of RMB20 - 30 per ton. The delayed weather warming in
Northeast China and North China caused difficult logistics and
slow market recovery.
    The consumption of caustic soda was increased after April.
Dealers started purchases and the price of caustic soda
presented a trend of stable rise.
   Both the purchase and the sales of caustic soda were brisk
in May. The price was stable and had a slight rise. The sales
amount of solid caustic soda came down and the price also started
to drop.
   Caustic soda expansion units started production in June and
July. The output of caustic soda increased rapidly. Disputes
over textile trade between China on the one side and the European
Union and the United States on the other led to a consumption
reduction of caustic soda in chemical fiber and dyeing/printing
sectors. With the dwindled demand in downstream sectors, the
price of caustic soda started a downslide.
   Due to restrictions on power utilization in some areas of the
south in August, the operating rate of caustic soda units was
reduced and there was a supply deficit of caustic soda.
Chlor-alkali producers in the north seized the opportunity to
sell great quantities of their inventory and the price stability
was maintained.
   The price of caustic soda in most regions had a drop in
September. There was however a trend of both price rise and price
drop in Northeast China. The main reason was that the price
difference between diaphragm caustic soda and ion-membrane
caustic soda was RMB500 - 600 per ton in Northeast China. Some
ion-membrane caustic soda users shifted to use diaphragm caustic
soda. Ion-membrane caustic soda was therefore in surplus whereas
diaphragm caustic soda had a supply deficit. The price of
diaphragm caustic soda was increased and the price of
ion-membrane caustic soda came down.
    The overall caustic soda market in October was stable and
flat. Due to the output increase, the sales had some difficulties.
The demand of caustic soda in North China and East China was slack.
The capacity expansion was however contributed by these regions.
There was therefore a fierce price competition in these regions
and the mainstream price was down by RMB20 - 30 per ton. The price
in other regions was relatively stable.
   The overall caustic soda market in November was slack. The
price was maintained at a low level with no great fluctuations.
The price of caustic soda was stable and had a slight drop in
December and the price in Shandong and Henan provinces came down
by a small margin.
   Due to the New Year holiday and the Spring Festival holiday
in January and February 2006, the downstream demand was reduced.
Because of restrictions on transportation, regions with surplus
output can hardly transport liquid caustic soda to other areas.
In Northeast China in particular, due to the freezing of ports
the transportation of liquid caustic soda to Guangdong province
was totally stopped. The prices of caustic soda in different
regions therefore dropped at different degrees. The price of
liquid caustic soda in Shandong province had a considerable
reduction and the ex-factory of 30% diaphragm caustic soda was
down to RMB360 - 370 per ton.
   Since 2005 the power price and the raw salt price have become
two major factors for the price trend of caustic soda.

Power price:
There is a great difference in power price in different regions
of China. The highest power price in Guangdong province can reach
RMB0.53 per kWh whereas the lowest power price in China is
RMB0.31 per kWh and the average power price is RMB0.4685 per kWh.
The power cost accounts for 42% the total cost of caustic soda
(before separation). The power price in China was increased by
RMB0.0252 per kWh from May 1st, 2005. The power price rise alone
increased the cost of caustic soda by RMB62.72 per ton and the
cost of ion-membrane caustic soda by RMB60.32 per ton.

Raw salt price:
The raw salt cost accounts for 26% of the total cost of caustic
soda (before separation). The output of raw salt in China was
44.547 million tons in 2005, an increase of 16.3% over 2004. The
average price of raw salt delivered to users is RMB384 per ton.
The raw salt market in China has got rid of the supply deficit
and the price is already stable and even has a slight drop. The
market is shifting towards surplus supply. There is an abundant
supply and a price reduction in the raw salt market today. The
price of raw salt at the beginning of April 2006 was RMB270 per
ton, a drop of 10% from the average market price of RMB300 per
ton at the end of 2005. The price of sea raw salt was higher than
the price of