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US caustic soda exports to Brazil up 6% in H1 2019: USITC

Houston — US caustic soda exports to Brazil were 6% higher on the year in the first six months of 2019, the latest US International Trade Commission data showed.

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The increase reflects higher demand for imported caustic soda by both Norsk Hydro's 6.3 million mt/year Alunorte alumina refinery and Brazilian petrochemical producer Braskem. The data posted this week showed caustic soda exports to Brazil from January through June reached 1,177,591 mt, up from 1,109,604 mt in January-June 2018.

Monthly data showed a more stark increase, with imports hitting a 2019 high of 411,174 mt in June, nearly triple the 145,170 mt in May and up 87% from the second-highest monthly amount in March of 219,303 mt.

Braskem began seeking more caustic soda imports in April, with tenders seeking package deals of both caustic soda and ethylene dichloride (EDC), a precursor to construction staple polyvinyl chloride (PVC), as the Brazil Geological Survey (CPRM) was wrapping up a study on the cause of geological damage -- including fissures, cracks in home foundations and a minor earthquake in March 2018 -- in Alagoas.

On May 8, CPRM issued its report that linked Braskem's Alagoas salt mining operations to the damage. The next day, Braskem announced that the company would cease salt mining and shut down its chlor-alkali and EDC plants, leaving the company dependent on imports of caustic soda to supply customers and EDC to feed downstream PVC production.

Braskem has a second chlor-alkali plant in the neighboring state of Bahia, but its 79,000 mt/year caustic soda capacity is much lower than the 460,000 mt/year capacity of its Alagoas plant. The 520,000 mt/year Alagoas EDC plant is Braskem's sole EDC facility in Brazil.

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The data showed US EDC exports to Brazil from January through June this year were 30% higher than in the first half of 2018.

More than a week after Braskem announced those shutdowns, a federal court in Brazil lifted an embargo that had limited Alunorte's output to 50% since March 2018, allowing Norsk Hydro to resume normal rates, and increasing its demand for caustic soda to feed that output. Caustic soda is a key feedstock for alumina and pulp and paper industries, as well as soaps and detergents. Environmental regulators had already lifted a similar production embargo.

Those embargoes were imposed after heavy rainfall in February 2018 raised concerns about contaminated leaks from Alunorte into the Para River. Multiple investigations showed no such leaks occurred, though Alunorte had an unlicensed release of untreated water. Norsk Hydro amplified protections against heavy rainfall ahead of the 2019 rainy season, including increased water reservoir capacity by the end of 2018 and a water cleaning system.

Brazil is the top export market for US caustic soda, and Alunorte's rate cut reduced demand by half to 25,000 mt/month. Flows to Brazil in 2018 fell 21.7% to more than 2 million mt compared to 2.59 million mt in 2017.

That demand destruction, which came amid US chlor-alkali operating rates above 90% in May-August and in December 2018, helped push spot export caustic soda prices down more than 47% to $340/mt FOB USG from May through early December 2018, S&P Global Platts data showed, its lowest level since reaching $330/mt FOB USG September 13, 2016. Prices briefly rebounded to $380/mt FOB USG by mid-December and briefly reached $410/mt FOB USG in March this year, but had retreated to $320/mt FOB USG by April 23. The Braskem and Alunorte news jolted prices up by more than 9% on June 4, but retreated back to $320/mt FOB USG by July 23, Platts data showed.

Some market sources were surprised by the slight increase in Brazilian demand and later retreat, but others said both Braskem and Alunorte have avoided spot cargoes, seeking contract deals instead to mitigate costs.

-- Kristen Hays, kristen.hays@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com