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Petrochemicals

US chlor-alkali rates reach 80% in November, highest since April plunge: sources

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US chlor-alkali rates reach 80% in November, highest since April plunge: sources

Highlights

Sluggish caustic soda demand has hampered ramp-up in rates

Record-high downstream PVC prices have supported higher output

Houston — November US chlor-alkali rates reached 80%, the highest level since March, indicating producers have begun ramping up output, according to the latest industry statistics released Dec. 18, multiple market sources said.

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Weak caustic soda demand has kept producers from raising chlor-alkali rates despite record-high downstream construction staple polyvinyl chloride prices.

Market sources said they have not seen a notable rise in caustic soda demand. But US export and domestic PVC prices have reached all-time highs on strong demand and supply that has been tight for months in part on reduced chlor-alkali rates.

The chlor-alkali process involves the production of chlorine, the first link in the PVC production chain, and caustic soda, a byproduct of chlorine production and a key feedstock for alumina and pulp and paper industries.

Chlor-alkali rates plunged to 68% in April from 90% in March when demand for chlorine and products made with it cratered amid the height of coronavirus pandemic-related shutdowns and economic shocks.

Chlorine's uses include the production of PVC, which is used to make pipes, window frames, vinyl siding, and other products. Chlorine also is a key ingredient for hydrochloric acid, used in oil and natural gas production, and methylene diphenyl diisocyanate, which is used to make polyurethanes for insulation in homes, vehicles, and appliances.

The shutdown crush led to reduced construction activity and oil and gas production, temporary closures of vehicle manufacturing plants, and buy interest in big-ticket items like homes, vehicles, and appliances. That fallout sharply reduced demand for chlorine and those downstream products.

Chlorine derivative demand rises as shutdowns ease

Demand for those downstream products began rebounding in May as shutdowns eased, particularly PVC amid a pandemic-fueled boom in new stand-alone home construction. As PVC pricing rose, however, chlor-alkali rates remained reduced, reaching only as high as 76% in August before a pair of hurricanes that hit Louisiana in late August and early October further reduced output. September and October rates were 71% and 73%, respectively, industry statistics showed.

US export PVC was last assessed Dec. 16 at $1,450/mt FAS Houston, an all-time high since S&P Global Platts began assessing it in 1983. Domestic prices were last assessed Dec. 16 at 67-69 cents/lb ($1,477-$1,521/mt), also an all-time high since Platts began assessing the market in 2001, Platts data showed.

A market source said November's 80% rate also appeared to be supported by higher demand for chlorine to make MDI, a precursor for insulation, on new home construction demand and increased vehicle and appliance sales.

"All in all, 80% is still a little surprising to me," the source said, noting caustic soda demand remained sluggish.

But rates remain lower than normal — US chlor-alkali rates reached 85% in November and 86% in December last year.