TOKYO -- Prices for sodium hydroxide, used in aluminum smelting and paper production, are soaring in Asian markets, as supply fails to keep up with rising demand, mainly in emerging economies.
Spot prices for sodium hydroxide, commonly referred to as caustic soda, in Asia as of early November have hovered between $370 and $380 per ton in solid-state equivalent on a free on board basis -- 30% higher than the most recent low marked in early December 2015. The figures are also the highest level in three years and 10 months.
Caustic soda is produced along with chlorine through the electrolysis of salt water. The chemical has a wide range of applications, such as in wastewater treatment.
In China, the international aluminum price recovery has triggered a spike in demand for caustic soda for aluminum smelting. Large caustic soda manufacturers in the country are also raising the domestic prices amid faltering chlorine markets.
The price increase in China has reduced the amount of caustic soda on spot markets, where the price is around 20% cheaper. The growing global demand for aluminum smelting is causing shortages and driving up spot prices, too.
The short supply may not be a temporary one. Global demand for caustic soda is estimated at 70 million tons a year. Economic growth in emerging economies and resource-rich countries boost demand by around 2% to 3% annually.
There are few plans to increase manufacturing capacity. In Europe, manufacturing caustic soda using mercury will be banned starting in 2018 in response to tougher environmental regulations.
Europe's combined output is around 2 million tons. There is speculation that about half of that will be lost through resulting plant closures.
The price hike in overseas markets has provided Japanese makers with a strong incentive to export the chemical.
Prices in Japan have been on downward trend since 2014, but have recently begun to stabilize. Some supply contracts, however, are less profitable than exporting.
The average sales price at chemical goods trading company Soda Nikka during the April-September period dropped less than 4 yen (4 cents) per kilogram on the same period last year.
According to the Tokyo-based Japan Soda Industry Association, domestic caustic soda month-end inventories fell below the level a year ago for nine consecutive months through July. Current levels, too, remain low.
Shin-Etsu Chemical announced plans in September to raise the domestic price for caustic soda, citing domestic shortages and price increases overseas as the main reasons. On Monday, Asahi Glass decided to follow suit.
Japan's caustic soda exports between January and September slid 10% from the same period last year. That was due to manufacturers prioritizing domestic shipments following a series of technical glitches as well as periodic maintenance at their facilities.
If exports grew among major manufacturers, domestic prices would see a sharp increase.