Caustic soda: Corrosion or progression?

By IM Staff
Published: Friday, 18 March 2016

The alumina industry is the largest consumer of caustic soda, but smelter closures across the world are threatening to eat into this market, while regulatory pressures on the chemical’s production are also forcing change in the industry.

The caustic soda industry is shifting under the influence of new market and regulatory influences, most of which mean higher production costs and slower demand growth for the chemical – also referred to as sodium hydroxide.

Caustic soda, along with hydrogen, is produced as a co-product of the chlor-alkali process (electrolysis of sodium chloride) of making chlorine – a chemical which is also facing some significant alterations in its market fundamentals.

According to market analysis by consultancy IHS Chemical, the global trade in caustic soda is currently about 8.5m tpa and is forecast to rise to 10.3m tpa by 2020.

There are no major global suppliers of chlorine or caustic soda. The world’s largest producer, Olin Chlor-Alkali, only has a 6% market share in terms of production capacity, for example. The chemical is difficult to transport, meaning that production tends to be regional and output is generally converted onsite into derivative products. Around 12% of caustic soda is traded internationally, however, although chlorine trading is probably less than 1% of production, IHS estimates.

The metallurgical alumina industry, in which caustic soda is used to extract alumina from bauxite to make aluminium, is among the main drivers of caustic soda demand. IHS figures indicate that alumina refining accounted for 15% of the 72.7m global caustic soda demand last year, followed by pulp and paper, at 12%.

"Sales to alumina refineries represent more than half of the global caustic soda trade in terms of volume," Vincent Pedailles-Ledoux, senior analyst at IHS, told IM. "Most caustic exporters rely heavily on the alumina industry and, in return, alumina players are influenced by caustic soda, which represents 13% of their cash costs, on average."

Curtailments in alumina refinery capacity worldwide, particularly in North America and China, have weakened demand for caustic soda, which has put further pressure on prices already under strain as a result of the collapse in energy prices, which account for approximately three quarters of caustic production costs.

Alumina refining is the largest single market for caustic soda (pictured: a caustic
soda unloader at Alcoa’s Kwinana refinery jetty). 
Andrew Priest, via Flickr 

Australia is the world’s largest importer of caustic soda, with pretty much all of it going into the alumina Industry. Last year, the country imported around 2.2m tonnes caustic soda, which represented 25% of global caustic trade, according to IHS. Around three quarters of Australia’s caustic soda consumption was sourced from Asia, dominated by China, while the
rest was divided between the US and the
Middle East. 

North America remains a low-cost region for caustic soda production and is likely to remain a major supplier of the chemical into Europe, where a series of consolidations and company restructurings will lead the continent to become a net importer of the chemical from 2018.

In China, which has recorded the strongest demand growth for caustic soda over the last decade, consumption is slowing as the country’s economy decelerates. IHS calculations show that Chinese demand for caustic soda was about 29.6m tonnes in 2015, more than three times that of North America, which consumed around 11.9m tonnes last year. 

According to Pedailles-Ledoux, Chinese caustic soda consumption in alumina is set to increase in the near term, as the country comes to rely more on its domestic bauxite reserves, which are generally of a lower grade than imported material. The lower the quality of the bauxite, the more caustic soda is needed to extract the alumina, he explained, with an average of 100kg tonnes caustic soda needed to produce 1 tonne
of alumina.

In the longer term, the completion of new bauxite mines in parts of Africa, South America and Asia-Pacific is likely to lead China to switch back to external supply of higher grade material, which will reduce its need for caustic soda.

Global caustic soda demand in 2015

Source: IHS

Emerging suppliers

The Middle East, which is seeking to enhance its mineral/chemicals production and processing capacity as it attempts to diversify away from the oil market, is a notable new growth spot on the global caustic soda map.

Saudi Arabia recently invested in the Al ba’itha bauxite mine and the 1.8m tpa Ras Al Khair alumina refinery, which commenced production in 2014 and consumes around 250,000 tonnes of domestically sourced caustic soda. UAE, meanwhile, is building a 2m tpa alumina facility at Al Taweelah to process bauxite sourced from Guinea, which IHS estimates will need 200,000 tpa caustic soda.

India is reliant on caustic imports for its alumina industry, with around two thirds of its consumption in this sector fed by overseas shipments, most of which are now coming from the Middle East. "Indian caustic imports have grown substantially over the years," said Pedailles-Ledoux. "Sources of caustic soda have moved from being dominated by Asia to
coming mostly from the Middle East. In five years, we estimate that the Middle East will still be the leading supplier to India, mainly due to
its better geographical position and product availability."

As for its own caustic soda needs, the region is more or less self-sufficient. "The Middle East is producing chlor-alkali quite cheaply, so it is unlikely to import from outside the region," Pedailles-Ledoux said. 

Excess global caustic soda capacity is being absorbed, with no growth in capacity expected over the next couple of years, which should rebalance the market. Output volumes will largely depend on demand for chlorine, however.

"You make more margin on chlorine than you do on caustic soda and the most important market for chlorine is vinyls," Pedailles-Ledoux explained. 

"The biggest consumer of vinyls is the construction industry, in applications like PVC pipes and windows. Construction is linked to GDP, so that means caustic soda and chlorine are also both indirectly linked to economic growth. Consumption in this sector is growing at about 3% per year – so steadily, but not strongly,"
he added.

Top 10 chlorine producing companies
(2016 average annual capacities and market share) 

Source: IHS

Pulp and paper

While pulp and paper is currently the second largest consuming market for caustic soda, at 12% of demand, IHS expects this market to contract as paper loses ground to electronic documentation and communications.

"This market could fall to 9% of caustic soda demand by 2020," Pedailles-Ledoux said. "But we expect other markets to fill this gap. Demand from the alumina industry will continue to grow, for example."

Legislation: Mercury to membrane

Aside from supply and demand factors, the global caustic industry is also affected by non-market forces, such as regulation. 

Tightening environmental legislation across the world, particularly in Europe, is forcing change in the chlorine industry and is set to have a significant impact on caustic soda.

IHS estimates suggest that Europe could lose between 1m and 1.2m tpa chlorine capacity by the end of next year, when new EU legislation banning mercury-based production of chlorine comes into effect. Impact on actual production will be lower, at around 300-400,000 tpa, however, as most of the mercury-based producers closing are operating at low rates, Pedailles-Ledoux said.

The mercury cell process (also known as the Castner-Kellner process) of making caustic soda, which uses mercury, sodium and water to produce caustic soda and hydrogen, was developed in the 1890s and has been the established method of production for much of the last century.

Concern about the negative impact of mercury emissions on the environment predicated the EU’s Industrial Emissions Directive, which requires all mercury-based production of caustic soda in Europe to be phased out by 11 December 2017.

According to industry association, Euro Chlor, in 2015 there were 24 mercury-based chlorine plants in Europe that were waiting to be phased out or converted to non-mercury membrane technology – a shift which is estimated to cost more than €300m ($333m*).

At present, around 58.8%, or 7.3m tonnes, of chlorine production in the EU, Norway and Switzerland is membrane based and 24.6%, or 3.05m tonnes, is mercury based, Euro Chlor figures state, while 16.6%, or 2.06m tonnes, is produced by other methods. 

In the membrane cell chlor-alkali process, the anode and the cathode on each chlorine production cell are separated by an ion-exchange membrane, which only allows sodium ions and some water to pass through.

The resulting brine is de-chlorinated and re-circulated, while the caustic solution leaves the cell with about 30% chlorine concentration, which is usually concentrated to 50% at a later stage in the process.

Membrane technology does not use mercury, making its emissions cleaner than those of the mercury cell process and it also uses less energy than the older technology. 

Proponents of the technology point out that the membrane technology has lower input and running costs than the mercury process, although the cost of switching over is substantial. 

Pedailles-Ledoux told IM that the cost of closing down a facility can be more, however.

"When a producer decides to shut down its mercury facility, it is not simply dismantling equipment and buildings; it is also cleaning underground where the soil has been contaminated by the mercury. It is important to note that, typically, even though the mercury cells are phased out, other activities remain on the industrial site. In these instances, the ground doesn’t need to be cleaned. The cost of cleaning the ground also depends on the degree of contamination of the soil, which is linked to the age of the plant, the depth of the contamination, the type of soil underneath the plant and the type of technology used."

"Because of these different variables, the cost of a mercury plant shut down can vary from a few million euros to several tens of millions," he added.

*Conversion made March 2016