Collective Alumina, Caustic Soda Talks Collapse
HOUSTON (ICIS news)--A breakdown in negotiations has led alumina producers in the Americas to abandon collective semi-annual contracts for caustic soda and, instead, seek deals with producers individually, an alumina producer said on Friday.
The development is a departure from the practice of settling on a half-year price among alumina producers and caustic soda producers in the Western Hemisphere. This time around, unusual market conditions have made it impossible for so many participants to reach a consensus, the alumina producer said.
“It no longer makes sense for us to have the same price across the market, so our intention has been to negotiate supplier by supplier,” one alumina producer said.
Alumina producers are given semi-annual contracts at discounted rates because they consume enormous amounts of caustic soda, including 10% of the caustic soda produced in North America.
Alumina, also known as aluminium oxide, is the main component of bauxite, the principal ore of aluminium. Alumina is extracted from bauxite using a heated and pressurised caustic-soda solution. Most alumina is then used to manufacture aluminium metal.
Second-half 2008 caustic soda contracts for alumina producers settled at $645/dmt (dry metric tonne) (€503/dmt), well below the average US monthly contract price in December of about $1,000/dmt, according to global chemical market intelligence service ICIS pricing.
Seeking to bring prices for buyers in the alumina sector more in line with the rest of the market, producers initially nominated first-half 2009 prices at above $900/dmt.
However, the alumina industry has been hit hard by the economic downturn and a collapse in aluminium commodity prices, and alumina producers such as Alcoa and RUSAL have made sharp production cuts.
Alcoa said in January it was planning to cut its global workforce by 13% by the end of the first quarter. Earlier this week, RUSAL announced it would suspend operations at one of its alumina facilities in Jamaica while cutting production at another facility on the bauxite-rich island to 50% of capacity.
Since they would be consuming far less caustic soda in 2009, alumina producers sought to lower their contact prices to about $600/dmt. But caustic soda producers balked at the suggestion, and negotiations dragged on from November through January with little progress made, participants said.
“Our price ideas were very different, and we agreed to disagree,” one US caustic soda producer said.
Caustic soda demand has weakened since fourth-quarter 2008, but so has co-product chlorine demand, and US chlor-alkali production rates fell to 50% of capacity in December, according to the Chlorine Institute, a trade group.
Those are by far the lowest production rates in years, but it has kept supply and demand fundamentals balanced and caustic soda prices stable, market sources said.
Yet in Asia, first-half caustic soda contracts for alumina producers settled this week at $390/dmt, about 21% lower than the second half of last year, industry sources said.
In the Americas, too, alumina producers said they have finally gotten the prices they were seeking, though it required abandoning the semi-annual collective contracts that had been the norm for many years.
Some smaller US caustic soda producers lowered alumina contract offers to about $850/dmt, but alumina producers said they rejected those offers and settled contracts with larger caustic soda producers individually in the $650-675/dmt range - in some cases discounted to even lower values.
They were able to do so both because of arbitrage opportunities from Asia and their clout as major consumers of caustic soda. But with many alumina operations running at below break-even levels, alumina producers said they have been forced to fight hard and make tough choices.
Although the alumina industry in the Americas may again return to collective semi-annual contracts for caustic soda, alumina producers said economic conditions in the second-half 2009 negotiations could again push alumina and caustic soda producers to make deals independently.
US caustic soda producers include Dow Chemical, Occidental Chemical, PPG Industries, Olin, Georgia Gulf, Bayer, Formosa Plastics and Shintech.
The development is a departure from the practice of settling on a half-year price among alumina producers and caustic soda producers in the Western Hemisphere. This time around, unusual market conditions have made it impossible for so many participants to reach a consensus, the alumina producer said.
“It no longer makes sense for us to have the same price across the market, so our intention has been to negotiate supplier by supplier,” one alumina producer said.
Alumina producers are given semi-annual contracts at discounted rates because they consume enormous amounts of caustic soda, including 10% of the caustic soda produced in North America.
Alumina, also known as aluminium oxide, is the main component of bauxite, the principal ore of aluminium. Alumina is extracted from bauxite using a heated and pressurised caustic-soda solution. Most alumina is then used to manufacture aluminium metal.
Second-half 2008 caustic soda contracts for alumina producers settled at $645/dmt (dry metric tonne) (€503/dmt), well below the average US monthly contract price in December of about $1,000/dmt, according to global chemical market intelligence service ICIS pricing.
Seeking to bring prices for buyers in the alumina sector more in line with the rest of the market, producers initially nominated first-half 2009 prices at above $900/dmt.
However, the alumina industry has been hit hard by the economic downturn and a collapse in aluminium commodity prices, and alumina producers such as Alcoa and RUSAL have made sharp production cuts.
Alcoa said in January it was planning to cut its global workforce by 13% by the end of the first quarter. Earlier this week, RUSAL announced it would suspend operations at one of its alumina facilities in Jamaica while cutting production at another facility on the bauxite-rich island to 50% of capacity.
Since they would be consuming far less caustic soda in 2009, alumina producers sought to lower their contact prices to about $600/dmt. But caustic soda producers balked at the suggestion, and negotiations dragged on from November through January with little progress made, participants said.
“Our price ideas were very different, and we agreed to disagree,” one US caustic soda producer said.
Caustic soda demand has weakened since fourth-quarter 2008, but so has co-product chlorine demand, and US chlor-alkali production rates fell to 50% of capacity in December, according to the Chlorine Institute, a trade group.
Those are by far the lowest production rates in years, but it has kept supply and demand fundamentals balanced and caustic soda prices stable, market sources said.
Yet in Asia, first-half caustic soda contracts for alumina producers settled this week at $390/dmt, about 21% lower than the second half of last year, industry sources said.
In the Americas, too, alumina producers said they have finally gotten the prices they were seeking, though it required abandoning the semi-annual collective contracts that had been the norm for many years.
Some smaller US caustic soda producers lowered alumina contract offers to about $850/dmt, but alumina producers said they rejected those offers and settled contracts with larger caustic soda producers individually in the $650-675/dmt range - in some cases discounted to even lower values.
They were able to do so both because of arbitrage opportunities from Asia and their clout as major consumers of caustic soda. But with many alumina operations running at below break-even levels, alumina producers said they have been forced to fight hard and make tough choices.
Although the alumina industry in the Americas may again return to collective semi-annual contracts for caustic soda, alumina producers said economic conditions in the second-half 2009 negotiations could again push alumina and caustic soda producers to make deals independently.
US caustic soda producers include Dow Chemical, Occidental Chemical, PPG Industries, Olin, Georgia Gulf, Bayer, Formosa Plastics and Shintech.
source: www.ICIS.com
