Force majeure at Dow plant may add further upward pressure on caustic soda prices

SAN FRANCISCO, June 6, 2008 (RISI) - Dow Chemical today declared “force majeure” at its Freeport, TX, caustic soda plant, further tightening supply and adding more upward pressure on already soaring prices.

The company said that it would be placing North American and some Latin American customers sourced from the Gulf Coast plant on 90% allocation immediately.

The force majeure will remain in effect for “a minimum of three months” until repairs are completed to the plant. The 4.0 million ton/yr chor-alkali plant is reportedly one of the largest in the world.

The plant made an “involuntary shutdown” after finding “a potential production issue in a critical area,” which caused other operational and equipment disruptions. But so far the situation has been managed so as not to completely interrupt supply, according to Dow.

Caustic soda is already in tight supply because of reduced demand for chlorine for use in making polyvinyl chloride (PVC) for which demand has been weak because of the housing slump. Chlorine is a byproduct of caustic soda in the chlor-alkali process.

Weak demand for chlorine has reduced operating rates at chloralkali plants to 85% in April, down from around 94% a year ago.

The Freeport plant incident will give more pricing power to US producers, which have announced June contract price increases of up to $120/dry short ton (dst). The May US contract price settled at $610-660/dst, up $60/dst, according to ICIS News. That followed a $50-70/dst increase in the first quarter.

With the June increase, prices will have climbed around $220-240/ton since the beginning of the year.