Inorganics: Weak Demand For Chlorine Will Color 2012

U.S. output of basic inorganic chemicals will grow just 0.8% this year, down from 1.3% in 2011, the American Chemistry Council predicts. The forecast is sleepy, but developments for some key products should keep managers wide awake.

Notably, weak demand for chlorine derivatives such as polyvinyl chloride is throwing off the delicate balance of the chlor-alkali business and setting it up for a rocky first half. In chlor-alkali production, the electrolysis of salt yields 1 part chlorine and 1.1 parts caustic soda. Because chlorine is a toxic gas that is not easily stored, it drives the reaction, and these days that means tightness in caustic soda supply.

It’s this dynamic that led PPG Industries, the number three U.S. chlor-alkali producer, to raise caustic soda prices in late November. The firm said its plant operating rates had fallen rapidly from 91% in September to less than 80%, constraining caustic soda supply.

Replicated across the industry, the phenomenon is also contributing to shortages of hydrochloric acid, according to Rx-360, a pharmaceutical quality consortium. Falling chlorine derivative demand means less output of HCl, which is often a by-product of chlorination. At the same time, HCl supplies are being gobbled up by the oil and gas industry for use in drilling. Rx-360 doesn’t expect HCl inventories to rebound until the third quarter of 2012.

Demand for sulfuric acid, the largest-volume inorganic chemical, should grow 1–2% this year, says Kurt Bitting, market manager for sulfuric acid at Rhodia, the largest U.S. marketer of the acid. Known as a bellwether chemical because of its diverse applications, sulfuric acid generally tracks the economy. After a healthier showing in 2010 and 2011, demand this year will be in line with “the new normal of slower economic growth,” Bitting expects.

The U.S. soda ash supply will continue to be sold out in 2012, according to Mark A. Douglas, president of FMC’s industrial chemicals group. Douglas credits strong overseas demand, particularly in Asia and Latin America. Domestic consumption, in contrast, will show only marginal improvement this year.

Douglas expects demand for hydrogen peroxide, another inorganic made by FMC, to increase by 2–3% this year. Peroxide growth is being driven by economic recovery in North America and Europe and by high demand for bleached pulp in China. However, demand has yet to return to the peak of 2007 and 2008, he says.

Although the 2012 outlook for some inorganics is dim, chlor-alkali executives are bullish about the longer-term prospects for their industry. In a presentation to analysts last month, PPG CEO Charles E. Bunch said the drop in natural gas prices due to the rise of shale gas has made the U.S. a globally competitive region.