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NE Asia liquid caustic soda at 2-year low; India shipments on hold

SINGAPORE (ICIS)–Spot prices of liquid caustic soda in northeast Asia fell below $400/dry metric tonne (dmt), to their lowest level in two years on increased supply as contract shipments to India, a key export market, were delayed.

– Regional inventory builds up on delayed exports to India

– China unaffected amid strong domestic demand

– Ample supply may last until end-2018

For the week ended 19 October, average prices declined to $370/dmt FOB (free on board) NE (northeast) Asia, down by $40/dmt from the previous week, ICIS data showed.

The last time liquid caustic soda prices were lower was on 28 October 2016, according to the data.

More supply is available as a recent tightening of import rules for the material in India prompted northeast Asian producers mainly from Japan and South Korea to put contract volumes bound for the south Asian country on hold.

About two weeks ago, a vessel containing liquid caustic soda was not able to unload cargoes at a port in India as it lacked certification from the Bureau of Indian Standards (BIS), market sources said.

Indian authorities have started requiring caustic soda imports to have BIS certification since April, although this was not enforced until recently, market sources said.

Caustic soda is used in the manufacture of alumina, pulp and paper products, soap, water treatment and textiles.

As processing of BIS certification takes around three months, the regional oversupply is likely to stay and cap any upside on caustic soda prices, market sources said.

India is a major importer of caustic soda, importing 411,033 liquid tonnes of the material in the financial year ending March 2018, according to data from the country’s Department of Commerce.

Japan is one of the major exporters of caustic soda in Asia, with India as its second-biggest market.

The south Asian country took up 34% of Japan’s shipments of the material last year, according to data from Japan’s Ministry of Finance.

Indian companies from downstream industries such as alumina producers could petition local authorities for a workaround solution to the BIS certification requirement or may have to lower their operating rates due to delays in caustic soda shipments.

Other end-users may attempt to play the odds. A major alumina company has opened a letter of credit for a delivery of liquid caustic soda in end-November to early December, said a market source.

“This means [the company] is taking a risk [with this delivery],” added the source.

Northeast Asian producers have managed to avoid an immediate build-up in inventory for late-October and November shipments by negotiating earlier contract shipments to other regions such as the US West Coast or Australia, according to a market source.

But mounting inventory concerns remain if they do not find any outlets for the excess volumes in December, added the source.

Supply from northeast Asia except China is therefore expected to remain long until end-2018.

While China is a net exporter of caustic soda, stable domestic demand and lower spot prices in Asia have led to scant export volumes since mid-2018.

Downstream industries in the country such as alumina and textiles are expected to continue or increase their operating rates as China attempts to maintain economic growth amid its escalating trade war with the US.

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