Chlorine petrochem derivatives market to rebound after 1999

Forecast Of World Chlorine Demand [82,693 bytes]

Improved demand for chlorine and its petrochemical derivatives is expected to return after 1999.

Leading the increase in demand will be the worldwide construction industry, says Chemical Market Associates Inc., Houston.

Growth will stem from stable and improving economic conditions in most areas of the world, CMAI concludes in its recent world chlor-alkali analysis.

The strongest growth, CMAI forecasts, will occur in regions that have previously lagged in terms of industrialization and those regions with large populations.

The report was spearheaded by Mary Blackburn, director of chlor-alkali and vinyls studies.

Forecast

"Beginning in 2000, we forecast that the financial issues in Asia will begin to be resolved,"CMAI said.

"North American gross domestic product growth will resume at levels of about 4%/year, and demand for vinyls products will jump start at growth rates close to 5%/year (see related story, p. 29).

"This improved demand for vinyls products will consume additional chlorine, causing operating rates and prices to improve," CMAI said. "In 2001 and 2002, high prices and margins will return to the chlor-alkali industry."

Past few years

Demand for chlorine in world markets grew at a rate of 2%/year during 1992-96, while world capacity grew at a rate of 1.1%/year.

In 1997, chlor-alkali producers enjoyed strong demand from the vinyls market and maintained operating rates at 86% of capacity.

These high operating rates and continued high prices and margins for chlorine encouraged more investment in chlor-alkali capacity in major producing regions such as North America, Middle East, and Asia.

Early this year, CMAI said, it became apparent in the North American market that increased chlor-alkali capacity, which had been brought on line in 1997, coupled with weak demand for chlorine from the vinyls end use market, was going to cause producers to cut operating rates. Lower chlorine demand and operating rates could tighten caustic soda supply/demand balances, allowing for caustic soda price increases, CMAI said. As a result, chlor-alkali producers announced price increases for caustic soda early this year and were successful in raising prices modestly, but not enough to counterbalance the decline in chlorine prices.

Chlorine prices in North America for the vinyls end-use market fell to $100/short ton by the end of second quarter 1998 from $215/ton at yearend 1997. Spot chlorine prices were even lower-less than $85/ton at the close of second quarter 1998.

CMAI said the decrease in chlorine prices stemmed from weak demand for vinyls products in export markets because of the financial and currency issues in Asia and overcapacity in the vinyls and chlor-alkali industries worldwide.

Immediate future

The quick decline in vinyls demand and its effect on chlor-alkali producers early this year foreshadow a period of weak prices and margins, which will persist through 1999, CMAI said.

The company forecasts weak chlor-alkali demand in North America during 1999 because of a slowdown in economic growth and continued lower vinyls exports to Asia from North America.

In addition, producers in Asia are exporting polyvinyl chloride at low prices just to (1) survive and (2) obtain hard currency. These low export prices for PVC place additional downward pressure on the other vinyls products: vinyl chloride monomer and ethylene dichloride.