Chemical costs are heading in one direction — LOOK UP
January 1, 2001 By Pulp & Paper Canada
A number of market forces came together last year to drive up prices. The recovery in pulp and paper markets accelerated in 2000, creating strong demand for chemicals. The robust economy put further p…
A number of market forces came together last year to drive up prices. The recovery in pulp and paper markets accelerated in 2000, creating strong demand for chemicals. The robust economy put further pressure on supplies and contributed to the run-up in prices. Many chemical producers were forced to hike prices in response to higher natural gas costs. The us cluster rules and power constraints also played a role in the surge in prices.
Unfortunately, Canada’s mills can expect continued tight market conditions. Worldwide demand for pulp and paper has flattened and mills are responding by cutting back production. While mill output could decline slightly in the short term, production levels will likely remain robust in 2001. Solid pulp output will be accompanied by strong chemical consumption, which will result in a snug supply/demand balance.
There is little doubt that 2000 was a seller’s market and pulp and paper firms can expect little relief from the high chemical costs. Strong mill operating rates, little new chemical capacity in 2001 and a continued push from raw materials and energy will continue to put upward pressure on prices.
Increased consumption of pulping chemicals last year reflected the growth in pulp output. Mills ran at a higher rate in 2000, producing an estimated 4% more pulp than in 1999. Bleached softwood kraft and mechanical pulps accounted for most of the growth.
The growth in kraft pulp output put pressure on caustic soda suppliers. Inventories declined throughout the year and markets became extremely tight by the end of 2000.
To make matters worse, caustic is used in the chemical, mining, petroleum refining, food processing, aluminum and detergent industries. Higher economic activity in North America meant increased caustic consumption in all of these markets. Furthermore, caustic producers were unable to operate their chloralkali plants at high rates because of softening demand for co-product chlorine. Decreased consumption of vinyl caused chlorine demand to fall and prompted chloralkali producers to reduce their output. Caustic markets have become so tight that some suppliers have put their customers on order control.
The tight supply/demand balance was largely responsible for the surge in caustic prices last year. Producers raised prices in the spring, summer and fall. Prices went up by well over $200/tonne (t), or more than 30%, in some markets.
Strong demand for caustic in mills and other markets and no new capacity will prolong the tight supply situation. Therefore, pulp mills can expect additional increases of about 10 to 15% in the first half of this year. Prices will come close to their peak levels in Canada and will likely reach an all-time high in the US. These prices are not sustainable. Mills can expect their caustic costs to level off late in the year and then start to come down in 2002.
While caustic capacity did not change significantly, a number of other changes took place last year. An agreement with Vulcan Chemicals last year guarantees that Quadra Chemicals will remain a significant supplier of caustic soda in eastern Canada. Quadra has become the exclusive distributor of Vulcan’s membrane-grade caustic solution in Ontario, Quebec and Atlantic Canada.
Vulcan’s chloralkali plants are located in Wichita, KS, Geismar, LA, and Port Edwards, WI. The new agreement gives Quadra a long-term supply of caustic.
Pioneer entered into a long-term exclusive agreement to market caustic soda produced at FMC’s Green River, WY, facility. Pioneer will be responsible for all sales activities and all support efforts such as transportation, customer service and technical support. The arrangement strengthens Pioneer’s presence in western markets by providing an additional supply source.
Canadian Occidental Petroleum officially changed its name to Nexen in the fourth quarter of 2000. Shareholders approved the name at a special meeting held in early November. The chemicals division, which operated under the name CXY Chemicals, will now be known as Nexen Chemicals. The company produces caustic soda, chlorine, sodium chlorate and hydrochloric acid.
Dow Chemical and Union Carbide continued to work on their merger. The companies expected to complete the deal in the third quarter, but the merger has been delayed. Dow is the leading supplier of caustic in western Canada.
Price increases for other pulping chemicals have been less dramatic, but costs have gone up nevertheless. Lime prices rose by about 4 to 5% last year. A similar increase can be expected in 2001 as producers try to offset rising inflation and fuel costs.
The supply of lime will again be plentiful this year. Producers are operating well below capacity and can easily meet increased requirements from pulp mills.
Sodium sulphate prices have been relatively stable last year, but a surcharge of $12/t was introduced because of high fuel costs. Supply of salt cake is long and any price movement this year will be at inflationary levels.
The US International Trade Commission determined last year that imports of sodium sulphate from Canada are not causing material injury to US suppliers. As a result of the negative determination, the ITC ended its investigation.
The probe was in response to a petition filed by Cooper Natural Resources and IMC Chemicals. The US is a major export market for domestic sulphate producers.
Sulphur dioxide prices have been relatively stable over the past year. US suppliers have announced an increase of US$10/t and Canadian producers are expected to shortly follow suit. Pulp mills can expect a price hike of about $15/t in early 2001. Plentiful supplies of sulphur dioxide should keep prices in check for the remainder of the year.
Sulphur prices weakened in the third quarter, but are still ahead of last year’s levels. Overall, prices are about 10 to 15% higher than a year ago. No significant change is forecast for 2001.
Demand for bleaching agents benefited from the growth in bleached pulp production. Output of bleached kraft pulp in 2000 was about 5% higher than in 1999. Production of bleached hardwood kraft and bleached sulphite was relatively flat.
The rise in bleached pulp production caused consumption of sodium chlorate to grow last year. Barring a major downturn in the pulp sector, the supply/demand balance for chlorate will be extremely tight in 2001. On the demand side, North American consumption will increase as the remaining mills prepare to meet the US Cluster Rules. On the supply side, availability of chlorate could be limited by high electricity costs and power deregulation in certain regions. Shortages are likely over the next year.
Increased power costs, high operating rates and strong demand put upward pressure on chlorate throughout 2000. Prices went up each quarter, for a total increase of $120/t, or approximately 20%. Mills can expect additional price hikes in 2001. An increase of $65/t will take place early in the year, followed by a similar price hike before the end of the year.
Additional chlorate capacity will come on stream to help alleviate the tight market conditions, but not until 2002. Albchem Industries will invest $40 million to build a new plant in Virden, MB. Construction will begin once environmental and other licensing requirements have been met, with completion scheduled for January 2002. The facility will have capacity to produce 40 kt/y of sodium chlorate.
Albchem decided to locate the plant in Manitoba because of favorable electricity costs. Electric power can account for up to 80% of the variable manufacturing costs. The company already operates an 80-kt/y plant in Bruderheim, AB, and will be able to reduce operating rates when electricity prices are high. The Manitoba facility will be operated at full capacity to compensate for fluctuating operating rates in Alberta. Electrical energy purchases will be deregulated in Alberta beginning this year.
Nexen Chemicals is expanding its Brandon, MB, plant by 70 kt/y. The expanded plant will be up and running in the third quarter of 20
02. Full nameplate capacity of 185 kt/y will be reached by the first quarter of 2003.
Nexen confirmed that the principal issue facing sodium chlorate producers is escalating power costs associated with non-uniform deregulation rates across North America. Expanding the Brandon plant gives the company additional options to meet market needs with cost-effective product.
Hydrogen peroxide is another bleaching agent that will benefit from the Cluster Rules. North American demand registered solid growth last year. Consumption will stagnate in early 2001 as mills take downtime, but the growth in peroxide demand will resume in the second half of this year. The supply/demand balance was tight in 2000. Markets will remain tight this year, even after the start-up of a mothballed plant in the US is added to the supply picture.
The snug market conditions resulted in price increases in the spring and fall. Prices went up by more than 10% and an additional increase of about 5% is projected for early 2001.
Elf Atochem Canada officially changed its name to Atofina Canada in mid-2000. The name change occurred following the merger between TotalFina and Elf Aquitaine, the parent company of Elf Atochem. Atofina Canada’s head office will remain in Oakville, ON. The company operates a world-scale hydrogen peroxide plant in Becancour, PQ.
Weak demand for phosphate fertilizer caused the supply of sulphuric acid to exceed demand and put prices into a free fall. Prices declined by about 20% last year. Prices have stabilized and will likely remain flat in the short term. Supply of acid will be more than adequate to meet mill requirements.
Chlorine prices rose in February and in May. By mid-2000, prices were more double the levels of a year ago. Weakness in the vinyl chain caused prices to fall by about 15% in the second half of the year. Prices will remain under downward pressure in the first half of 2001 and will then start to recover in the second half as vinyl markets improve.
Higher fuel and energy costs led to a 7% increase in sodium silicate prices last year. Suppliers will likely implement another price hike in the 4 to 6% range for 2001. With no new capacity scheduled to come on stream, the supply/demand balance for silicates will remain tight.
Weyerhaeuser will invest $167 million over the next two years to enhance the environmental performance and reduce operating costs at its Grande Prairie, AB, pulp mill (Pulp & Paper Canada, December 2000).
The most important aspect of the project involves the introduction of oxygen delignification to the pulping process before the bleaching sequence. The improvements will lead to a reduction in effluent color. The company will also upgrade the pulp machine and boost capacity from the current 310 kt/y to 344 kt/y.
Oxygen requirements for the delignification system will be about 50 t/d. The use of sodium chlorate for chlorine dioxide generation is expected to decline following the modernization.
The growth in paper production was led by printing and writing papers. Output of these types of paper was up by approximately 11% last year. Newsprint, containerboard and boxboard production remained flat.
Suppliers of paper fillers and coating pigments will benefit from plans to restart Abitibi-Consolidated’s Gaspesia paper mill in Chandler, PQ. A consortium comprised of Fonds de Solidarit, Clermont Levasseur and SNC-Lavalin purchased the mill. They intend to convert the facility to produce high-quality coated free sheets. Closed in 1999, the Chandler mill used to produce newsprint. Paper from the converted facility will be used in high-gloss magazine production.
Strong demand for titanium dioxide led to an increase of $0.06 to $0.07/lb, or approximately 5%. Supplies are snug, mainly because of increased use of pigments in coatings and plastics. Markets will likely remain tight worldwide and will force prices up by an additional 5% in 2001.
The closure of Huntsman Tioxide’s titanium dioxide plant in Tracy, PQ, in mid-2000 also helped tighten the domestic supply/demand balance and increased Canada’s reliance on imports. The facility produced titanium dioxide pigment at one time, but was converted to a finishing operation several years ago. The initial capacity was 52 kt/y, but the nameplate rating was downsized to 26 kt/y.
With the shutdown, Huntsman Tioxide will now have to import material from its other locations.
Kronos is now the only Canadian producer of titanium dioxide. The company’s pigment plant in Varennes, PQ, has an estimated capacity of 70 kt/y.
Supply of kaolin will not be a problem in 2001, even with the closure of IMERYS’ paper-grade kaolin capacity in mid-Georgia. The company will shut down 800 000 tons per year of capacity no later than Feb 1, 2001. After a thorough evaluation, the company determined that a portion of the mid-Georgia hydrous kaolin output is no longer commercially viable.
Over the long term, additional supplies of kaolin could become available. Kaoclay Resources of Halifax, NS, has released the results of an extensive kaolin exploration and evaluation program carried out by its wholly-owned subsidiary, Sparta Kaolin Corp (SKC). The companies have determined that a very large resource of high-quality, coarse primary kaolin is present in multiple deposits located in east central Georgia and extending northeast.
Kaoclay believes the Sparta kaolins will be able to compete with product from Georgia, the UK and Brazil. The company also believes the Sparta kaolins have the potential to penetrate and gain market share from existing kaolin, calcium carbonate and titanium dioxide producers.
Pulp and paper mills can also expect plentiful supplies of alum this year. Despite excess capacity, producers raised prices by $6/dry t, or approximately 3%, because of higher raw material costs. Another increase of 2 to 3% is projected for 2001.
Eaglebrook became a major supplier of alum when it purchased the Alcan plants in 1999. The company moved production equipment from its Shawinigan, PQ, facility to its Varennes, PQ location in early 2000.
Higher raw material costs put upward pressure on styrene-butadiene latex prices last year. Prices increased by about $0.05/lb in the fall and another increase of $0.05/lb can be expected for early 2001.
Talc and ground calcium carbonate both experienced modest price increases of 2 to 6% in fall 2000. With continued pressure from fuel costs likely for 2001, pulp mills can expect to pay an additional 3 to 5% for both calcium carbonate and talc this year.
Hercules sold its hydrocarbon resin business and part of its rosin operation to Eastman Chemical late last year.
Although Hercules continues to own resin plants in Burlington, ON, and Hattiesburg, MS, the company will manufacture products for Eastman. The Burlington site fractionates crude tall oil into tall oil rosin, tall oil fatty acids and tall oil pitch. The rosin is used to make paper sizing.
Hercules was involved in a number of transactions last year as it prepares for a corporate restructuring. The company’s pulp and paper division formed an alliance with National Starch and Chemical to market starches. The agreement covers Canada, the US and Europe. It took effect on January 1, 2001.
National Starch sells over 300 million lb/y of starch for papermaking. The company will continue to research, develop and manufacture its papermaking starches. Hercules will handle marketing, sales and technical support. The starch products will retain the existing National Starch and Chemical brand names.
Late last year, Hercules decided to consider the sale or merger of the company. After careful consideration, the company determined that the best strategic path over the long term is to become part of a larger enterprise.
Vinings Industries expanded its sales coverage of the Canadian market when it purchased Raisio Chemicals’ pulping additives business last year. The deal included Raisio’s manufacturing plant in Prince George, BC.
Having a second plant in Prince George increases the company’s flexibility and gives it access to new technologies
. The two companies are also exploring additional areas where they can work together to better serve pulp and paper customers.
The Prince George facility produces dispersants, anthraquinone, defoamers and polymers. Vinings also has a plant in St Catharines, ON. Raisio decided to sell the business to sharpen its focus on functional paper chemicals. The company’s product line includes starches, sizing, polymers and coating additives. Vinings manufactures its products at seven sites in Canada and the US. Its product line includes biocides, defoamers, deposit control technologies, colloidal silica based non-skid products, polyacrylate polymers, de-inking agents, surface sizes and bleaching additives.
Cytec Industries decided to sell its paper chemicals division last year. The company was unable to determine an acceptable path to a number one or a number two market position. Therefore, the firm decided to sell the assets and re-deploy the cash.
Cytec sold its paper sizing and strength chemicals to Bayer for US$90 million. This transaction included patents, technical expertise and marketing operations. Cytec will continue to own the plants, but will manufacture paper sizing and strength chemicals for Bayer.
Cytec’s line of retention, drainage and fixative chemicals was sold to Ciba Specialty Chemicals for $23 million. The deal includes the Polyflex, Accurac, Cydrain and Cypro trade names. Once again, Cytec will continue to own the plants, but will make certain retention and drainage aids for Ciba under a manufacturing agreement.
While some suppliers are expanding through mergers and acquisitions, BASF will expand its paper chemicals business with an investment program consisting of 520 million Euros by 2004. The NAFTA region accounts for nearly one quarter of the company’s sales of paper chemicals. Nearly 140 million Euros will be invested in North America. The company produces coating dispersions, dyes and process chemicals in the NAFTA region.
Joe Piccione is vice-president, Camford Information Services, Toronto, ON.
Mill consumption19992000Supply forecast
Sodium sulphate6261balanced to longLime230238longSulphur7576longSulphur dioxide1718balanced to longSodium hydroxide243254tightPulping chemicals
Chlorine4139balancedSodium chlorate590635tightSulphur dioxide6163balanced to longSulphuric acid450460balanced to longHydrogen peroxide180197tightSodium silicate5962balanced to tightSodium hydrosulphite1616balancedSodium borohydride1515balancedOxygen334343balanced to tightSodium hydroxide543570tightBleaching chemicals
Aluminum sulphate4847longRosin size6.05.9balanced to longKaolin465481balanced to longOther clays7779balanced to longTitanium dioxide1717balanced to tightCalcium carbonate292305balancedStarch131136balancedSB latex3335balanced
Some of the chemicals listed above have more than one application. The figures represent total mill consumption.
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