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Chemical Report: Soft demand keeps most chemical prices in check

Sluggish pulp and paper markets created soft demand for most chemicals, easing the pricing and supply pressures that existed at the start of last year.While prices did rise, most of the increases took…

Sluggish pulp and paper markets created soft demand for most chemicals, easing the pricing and supply pressures that existed at the start of last year.

While prices did rise, most of the increases took place in the first half of the year when supply/demand balances were still tight. As the year progressed, market conditions in the pulp and paper sector deteriorated. This helped relieve the supply pressure and put downward pressure on prices.

Unfortunately, higher energy and raw material costs partially countered the decline in pulp market conditions. These cost increases acted to stabilize prices and in many cases prevented chemical prices from falling.

All signs to point to plentiful supplies of mill chemicals in 2002. Pulp and paper production and economic conditions are not expected to improve until at least mid-year. In addition, the cost increases that drove up prices early last year have lessened. As a result, chemical price increases will be modest in 2002.

Pulping chemicals

Consumption of pulping chemicals reflected the downturn in pulp output last year. Pulp mill operating rates dropped well below 90% last year as a number of forestry firms took downtime to cope with sluggish demand and rising inventories. Total production volumes declined by about 7%.

Output of chemical-intensive pulps accounted for much of the decrease. Production of kraft, sulphite and semi-chemical pulps all declined in 2001.

Lower mechanical pulp output also had a negative impact on chemical consumption, including caustic and sulphur dioxide. Production of all types of mechanical pulps was down about 6% in 2001.

More mill closures were announced late last year, which will ensure that demand for pulping chemicals remains soft in the short term. NorskeCanada permanently shut down its 165-kt/y kraft pulp mill at Powell River, BC. The facility supplied furnish for the company’s paper machines at Powell River and Port Alberni. The company determined that it had more pulp than it needed following the acquisition of Pacifica Papers.

Louisiana-Pacific indefinitely closed its 160-kt/y bleached chemicathermomechanical pulp mill in Chetwynd, BC at the end of 2001. The facility will remain down until a buyer can be found.

Lower caustic consumption at pulp mills last year, combined with the overall weakness in the economy, has resulted in abundant supplies of the pulping and bleaching agent. North American chloralkali operating rates are currently down to 85%, compared with 92% a year ago.

Pulp mills experienced a significant improvement in caustic pricing as the year progressed. Prices went up by about 20-25% in the first half. Prices then stabilized by mid-year. With lower operating rates, caustic suppliers began fighting for market share. This led to price erosion late in the year, which wiped out most the gains in the first half. By the end of 2001, caustic prices had risen by only 5-10%.

The pricing picture for caustic should remain favorable in the short term. Supplies will be long as pulp mills continue to take downtime. One Canadian producer believes there is more downside and upside potential early in 2002. Prices will likely drop by about 5-10% in the first half, stabilize in the summer and then recover in the second half.

Pulp mills in western North America will have to cope with reduced supplies of caustic soda. Dow Chemical is restructuring its chloralkali operations in Fort Saskatchewan, AB as part of a global upgrade. The company will reduce the site’s overall capacity by 25% later this year.

Dow currently produces caustic and chlorine at the plant using both membrane and diaphragm technology. Part of the facility has not operated as reliably as desired and the capital cost of upgrading the site is significant. After an internal evaluation, the company determined that the most viable option was to close part of the complex.

Pioneer curtailed production at its Tacoma, WA site by 50% last year. The company attributes the shutdown to the rapidly deteriorating business climate caused by extremely high electricity costs.

Despite the reduction in capacity, supplies should not be a problem this year. Dow will continue to meet its contractual obligations by using chlorine and caustic from its other sites in North America. In addition, the economic downturn has lessened demand for caustic in virtually every market across North America.

Chloralkali producers were not the only ones shutting down capacity. Saskatchewan Minerals mothballed its sodium sulphate facility at Ingebrigt, SK at the start of 2001. The company has capacity to produce 170 kt/y of sodium sulphate at the site.

Saskatchewan Minerals continues to operate a sodium sulphate facility at Chaplin, SK and has enough capacity to meet customer needs. The Ingebrigt shutdown, combined with several closures in the U.S., has created a balanced market for sodium sulphate.

Sodium sulphate producers hiked prices by 10-15% last year in response to rising raw material and energy costs. Another modest increase, probably about 10%, is expected for 2002.

Higher raw material, energy and labor costs also pushed up lime prices by about 3-5%. With abundant supplies available, lime prices will continue to track cost increases. A similar increase is projected for 2002.

Strong competition and excess sulphur supplies have created a buyers’ market. Prices declined $15/tonne in 2001. Prices began to firm up late last year and will likely increase in the first half of 2002. Pulp mills can expected a price hike of $5-15/tonne early in the year.

Bleaching chemicals

Bleached pulp tonnages decreased in 2001, causing demand for bleaching chemicals to also decline. Production of bleached softwood kraft fell by about 11% last year. Output of bleached hardwood kraft was down slightly and production of bleached sulphite remained flat.

Deteriorating market conditions for bleaching chemicals has resulted in financial hardship for suppliers of bleaching chemicals. Sterling Chemicals filed for bankruptcy protection under the U.S. Bankruptcy Code in mid-2001 after it was unable to meet its debt obligations. Pioneer also filed for bankruptcy protection in the U.S., while its Canadian subsidiary made a similar filing with the Superior Court in Montreal.

Fortunately, the financial difficulties will have little impact on the supply of bleaching chemicals in Canada. Sterling’s foreign subsidiaries, including those in Canada, were not affected by the bankruptcy filings. Pioneer noted that the filings in Canada and the U.S. did not disrupt its deliveries to customers.

Both companies supply sodium chlorate, caustic soda and chlorine. Pioneer’s Cornwall, ON facility also produces PSR 2000 and IMPAQT pulping additives.

Lower bleached pulp production help alleviate the sodium chlorate supply shortages that existed at the start of 2001. The supply/demand balance was extremely tight in the first half. Soft demand during the summer enabled producers to rebuild their inventories, but demand picked up again last fall. Late last year, North American sodium chlorate plants were running at 93-95% of capacity. Markets should remain balanced through 2002.

While chlorate availability improved in 2001, the pricing picture deteriorated for pulp mills. Electricity is the principal raw material for chlorate producers, accounting for 80% of the variable manufacturing cost. Regional deregulation and localized energy shortages drove up costs. Manufacturing costs for chlorate producers went up as much as four fold between 2000 and 2001. Suppliers were forced to pass along these increases to their pulp customers. As a result, chlorate prices rose 10-15% early in the first half of 2001 and then stabilized late in the year. Pulp mills can expect an additional increase of 5-10% by mid-2002.

The supply of chlorate will be much better than last year and will continue to improve as the year progresses. Construction of Nexen’s new 70-kt/y chlorate plant at Brandon, MB is ahead of schedule. The company expects to complete the project in the first quarter of 2002. The Brandon facil
ity will allow Nexen to move its chlorate production to more stable electric power markets.

As part of a cost-cutting move, Eka Chemicals ceased production of drummed sodium chlorate crystal and consolidated production at Magog, PQ. Customers that incur more freight due to the change in location will have their invoicing reflect a freight equalization credit for one year ending Dec 31, 2002. Most of the chlorate output from the Magog plant serves the pulp and paper industry.

Higher energy costs also put upward pressure on hydrogen peroxide prices last year. A price hike of $130/tonne (100% basis) in Canada and US4 cents/lb in the U.S. went through in the first quarter. Prices remained flat in the second half. A similar price increase can be expected in mid-2002 as demand for the chemical rises.

Pulp mills can look forward to ample supplies of peroxide, a welcome relief after the tight market conditions of 2000 and early 2001. North American plant operating rates, which were in the mid-90% range at the start of last year, fell below 90% by the end of 2001. With no major increase expected in pulp production during the first half of 2002, the supply of peroxide will be more than enough to meet the needs of pulp mills, even with FMC’s recent shutdown.

FMC idled 105 million pounds/y of peroxide capacity in the third quarter. Prior to the shutdowns, the company’s Prince George, BC plant had capacity to produce 105 million pounds/y of peroxide, while the Bayport, TX facility had a nameplate rating of 240 million. The company eliminated 35 million pounds/y of capacity at Prince George and 70 million pounds/y of capacity at Bayport. The West Virginia facility was not affected by the recent cost-cutting measures.

The current weakness in peroxide markets has not deterred Atofina from proceeding with expansion plans and boosting the supply in eastern Canada. The company will spend US$20 million to expand its Becancour, PQ facility, creating one of the world’s largest peroxide facilities. According to Atofina, the site enjoys an excellent geographical location and has a favorable supply of energy.

The nameplate rating at the site will rise from the current 73 kt/y (100% basis) to 110 kt/y when the project is completed in 2004. Total Canadian capacity will increase by about 15%.

Degussa-Huls Canada changed its name to Degussa Canada on April 1. The shortened name reflects a similar change to its parent company, headquartered in Parsippany, NJ.

Pulp mills were not responsible for the price erosion in sulphuric acid. Prices went up $8/tonne at the beginning of last year, but excess supplies caused prices to fall. No significant change is expected in sulphuric acid prices for 2002.

Noranda and DuPont decided to end their sulphuric acid marketing venture last year. The Noranda DuPont LLC partnership, formed more than three years ago, was renamed NorFalco LLC. Its administrative offices were relocated from Chadds Ford, PA to Cleveland, OH, with a subsidiary company located in Mississauga, ON.

The companies are now marketing their acid production independently. NorFalco is distributing the sulphuric acid produced by Noranda and Falconbridge at smelters in Ontario, Quebec and New Brunswick. The two firms can produce 2.5 million tons/y of acid.

Noranda will soon have less sulphuric acid available for market. The company will temporarily shut down its Gaspe copper smelter at Murdochville, PQ at the end of April for a period of at least six months because of low metal prices. The facility produces acid as part of the smelting process. Acid production was 220 kt during the first nine months of last year.

The closure will have little impact on the supply/demand balance and on prices. Noranda’s other acid-producing sites will be able to meet customer requirements.

Sodium silicate supply is good, but pulp mills will have to pay more for the product. Prices rose 8% in 2001 and another increase of 6-8% is likely for this year.

Oxygen prices rose 8-12% in 2001 and pulp mills can anticipate another increase of 6-10% early in 2002. Higher raw material and labor costs and rising health and liability insurance are largely responsible for the increase in oxygen prices.

Air Liquide Canada started up a new air separation plant in Varennes, PQ in the second quarter of last year. The $30-million facility can produce 800 tonnes/d of oxygen and nitrogen, although most of the plant’s output will be sold to Ispat Sidbec.

Papermaking chemicals

Demand decreased for many papermaking chemicals, reflecting lower paper production. Newsprint mills operated at slightly more than 90% of capacity as output declined 8%. Production of other types of paper fell 2% last year. Lower printing and writing paper and kraft paper output more than offset increased production of tissue and specialty papers.

A number of paper operations in Canada underwent changes last year. Abitibi-Consolidated permanently closed its No. 1 specialty paper machine at Iroquois Falls, ON, eliminating 53 kt/y of capacity. The company said it was left with no alternative after one of the local unions rejected the company’s proposed restructuring program. The company also closed one of its newsprint machines at Kenora, ON.

At Thorold, ON, Abitibi-Consolidated is investing $50 million to build a new de-inking plant. The mill will become only the second plant in Canada to produce newsprint from 100% recycled fiber when the project is completed in the summer of 2002. The mill has capacity to produce more than 400 kt/y of newsprint.

Kruger completed a $45-million capital spending program at Trois Rivieres, PQ. Modernization of the No. 7 and No. 10 newsprint machines included upgrading the forming, press and drying sections, raising capacity by 19 kt/y. Modernization of the No. 8 coater helped increase coating paper capacity by 15.3 kt/y.

Following a $21-million investment, Kruger reopened the No. 7 paper machine at Corner Brook, NF. The company also invested $78 at Bromptonville, PQ to improve paper quality and reduce costs. Major improvements were made to the No. 1 and No. 2 paper machines.

Alliance Forest Products Donnacona completed a $275-million project to install a new paper machine and a $12.5 million investment to increase bleaching capacity. The changes at Donnacona, which were made necessary by the shutdown of two outdated paper machines, will increase capacity by 62 kt/y. A second bleach plant was installed to increase production of high bright papers.

Abitibi-Consolidated sold its Wayagamack mill in Trois-Rivieres, PQ to a subdidiary of Kruger last year. Kruger plans to produce a full range of coated groundwood grades at the mill.

The titanium dioxide pricing picture favored pulp mills last year. Historically, plant operating rates close to 90% create a sellers’ market. Pigment producers ran their plants at 85% last year, creating a buyers’ market. Suppliers had to fight for market share and were forced to idle capacity worldwide as demand fell in all three major markets — paper, plastics and coatings. Consequently, titanium dioxide prices fell by about 4% last year.

Titanium dioxide demand will be soft in the short term because of the weak global economy. Prices will trend lower, falling by about 3-4% before stabilizing in mid-2002.

Millennium Chemicals, the second-largest titanium dioxide supplier in North America, is realigning its operations and management structure. The company is dividing its business units into two segments. The acetyls, bulk titanium dioxide and Equistar businesses will be grouped under “operational excellence”. The “growth and development” businesses will include the company’s higher-margin products.

While titanium dioxide prices decreased slightly last year, higher energy and raw material costs put upward pressure on a variety of other papermaking chemicals. Alum prices rose $8/tonne (dry basis), or approximately 3-4%. There is plenty of capacity, so alum prices will continue to track raw material cost increases. Another price hike of 2-3% is projected for alum by mid-2002.

Marsulex expanded its share of the alum business at
the start of 2002 when it purchased Westaim’s chemical division. Included in the acquisition was United Chemicals, which produces alum at Calgary and Saskatoon.

Styrene-butadiene latex prices in Canada rose 6.5 cents/kg (dry basis) last spring because of higher raw material costs. Another modest price hike is projected for 2002.

Dow Chemical and Reichhold reorganized their latex businesses last year. The two companies combined their specialty latex operations into a new joint venture called Dow Reichhold Specialty Latex. In addition, Dow purchased Reichhold’s carpet and paper latex businesses.

Kaolin and calcium carbonate prices will rise early this year, after several months of price stability. Kaolin prices will increase 5-7%, while calcium carbonate prices will go up by 6-8%. Higher energy and raw material costs are the main driving forces behind the increases.

Specialities

A number of specialty chemical suppliers underwent changes last year. BASF is reorganizing its North American dispersions and paper chemicals business. The company will close its Polymin manufacturing plant at Freeport, TX by mid-2001. The facility produces ethyleneimine polymers, which are used during papermaking. The company will supply the North American market from its Ludwigshafen, Germany complex.

As part of a global product launch, BASF began marketing its Basonal binders to the North American paper and paperboard industry last year. Basonal bind coating pigments to the sheet and impart specific printing capabilities and optical properties to the paper and paperboard. The binders are manufactured using a multi-monomer concept and are made from acrylics, acrylonitrile, butadiene and styrene. Typical applications include catalogs, magazines, mail inserts and packaging for food, cosmetics and pharmaceuticals.

Rohm and Haas and Omnova signed a letter of intent in the fourth quarter to market paper coatings. The global joint venture will supply styrene-butadiene and acrylic-based binders, pigments, rheology modifiers, cross-linkers, lubricants and dispersants to the paper and paperboard industry.

Ciba Specialty Chemicals is realigning its nine business units into five segments. The five new divisions are: plastic additives; coating effects; water and paper treatment; textile effects; and home and personal care. The water and paper treatment group combines the former paper chemicals and water treatment businesses.P&PC

Joe Piccione is vice-president of Camford Information Services, Toronto, ON.

Markets for major pulp and paper chemicals in Canada