Dow force majeure pushes caustic soda above $600/ton

Supply disruption will last at least three months

by Tom Stundza -- Purchasing, 6/18/2008 12:14:00 PM

The force majeure from the huge Dow Chemical caustic soda plant in Freeport, Texas, and subsequent reduction in shipments has triggered price inflation, pushing market prices above $600/ton for all grades. Purchasingdata.com’s latest buyer survey finds diaphragm grade caustic soda selling for an average $601/ton this month, up from $488 in May, while rayon grade caustic soda is averaging $621/ton, up from $534.

Dow Chemical’s production and shipping problems at Freeport resulted in a force majeure declaration on June 6, tightening market supply and adding more upward pressure on already soaring prices. Force majeure (French for "greater force") is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs. The company put North American and some Latin American customers sourced from the Gulf Coast plant on 90% allocation for a minimum time of three months.

Caustic soda has been in tight supply because of reduced demand for chlorine for use in making the polyvinyl chloride resin, which has seen demand weaken this year because of the nationwide 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. That already had moved diaphragm grade caustic soda up from around $390 in January to almost $490 in May before the 23% price explosion in June. 

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