The global demand for caustic soda is poised to outstrip production capacity in the latter half of this decade, driven by increased production costs and a surge in electricity expenses.

The potential shortage is intricately linked to the trajectory of global economic activities, with existing capacity expected to hold until 2025. However, the industry faces the risk of shortages and price hikes unless additional capacity is introduced.

Several factors have contributed to the current challenges in the chemical industry, with supply and demand mismatches and disruptions in the supply of caustic soda, a crucial component for chemical and food manufacturers.

Caustic soda finds applications in domestic products like drain cleaners and bleach, as well as serving industrial needs in meat and poultry cleaning. Its versatile uses extend to acidity regulation, anti-caking agent functions in food products, peeling agent roles in cured and canned foods, alkalizing properties in beverages, and contributing to packaging production.

Causes of the Shortage

The energy-intensive nature of caustic soda production has been adversely affected by the Russia-Ukraine conflict, leading to increased energy prices and subsequent production constraints. This has, in turn, impacted plastic production costs, reducing demand for chlorine and affecting caustic soda supply-a critical element in the chlorine manufacturing process. Traditionally, caustic soda supply has relied on byproducts of plastics used in car and construction industries, making the production of plastics more expensive as energy prices soar. Economic slowdowns and rising inflation further dampen the demand for new housing and cars, compounding the scarcity of caustic soda.

Covid-19 pandemic

The COVID-19 pandemic has particularly impacted downstream sectors related to caustic soda, with the exception of the detergent, water treatment, and bleach industries. Production cuts in the US market in 2021 have led to an ongoing shortage. The UK also faced regulated supply due to capacity restrictions in Cheshire by the country’s largest manufacturer during maintenance.

In 2021, rising freight costs and feedstock supply constraints in China contributed to price increases in the Asia Pacific region. Hurricane Ida’s impact on Louisiana led to plant shutdowns, affecting caustic soda supply in North America in Q3.

The insufficiency of qualified road tanker drivers in 2022 led to caustic soda transportation through rivers and canals. However, lower water levels during the summer months reduced load capacities, exacerbating the supply situation.

Challenges in 2023 and 2024

High caustic soda costs in Europe, driven by increases in natural gas and electricity prices, presented challenges in 2022. In 2023, economic slowdowns in the European Union led to diminished profit margins and market oversupply, resulting in price reductions.

In November 2023, caustic soda prices in China, the US, and Europe decreased compared to the previous month. However, earlier in September 2023, prices in China increased due to diminishing inventories and rising demand from the aluminum industry. The US market saw a rise in export prices due to supply reductions from turnarounds and operational disruptions.

Anticipated Challenges and Opportunities for Iran

Looking ahead, caustic soda production challenges are expected to persist globally in 2024, influenced by increased winter electricity costs. Europe and the US may experience reduced operating rates due to declining demand for certain chlorine derivatives. The impending hurricane season also poses a threat to production rates.

Considering Iran’s potential involvement, the shortage of caustic soda globally presents both challenges and opportunities. Challenges may arise from the economic slowdown and high energy prices affecting global demand. However, opportunities lie in Iran’s ability to strategically position itself as a reliable caustic soda supplier. The country could benefit from increased demand and potential price surges by enhancing production capacities and addressing supply chain inefficiencies.

Conclusion

As global economic growth is projected to slow down in 2024, influenced by high interest rates and increased energy prices, the caustic soda market faces uncertainties in demand and production dynamics. A potential scarcity of caustic soda in Europe could lead to significant price surges and supply chain challenges. Without additional production capacity, the industry is poised for shortages and price hikes in the coming years. Iran, with strategic planning and efficient production capabilities, stands to navigate these challenges and leverage the opportunities arising from the caustic soda shortage.

Hossein Moshiri

WA +989124311007

info@chemkraft.ir

Source: https://chemkraft.ir/en/the-next-major-shortage-in-the-chemical-industry/