EU Cl2 Jul12.pngChloralkali production is an excellent indicator of market direction in the short-term. Unlike petrochemicals, cellrooms can quickly reduce or increase operating rates. This is essential for efficient operation, as the price for electricity can change every 30 minutes.

Thus as the above chart of European chlorine production shows (based on Eurochlor data), demand seems to have fallen sharply in June (red line):

• It fell to 760KT, equal to June 2009
• H1 output was thus down 3% versus 2011 levels

Operating rates also fell sharply to 73.5%, compared to 77.5% in May.

Producers are clearly anxious to avoid the experience of H1 2009, when caustic soda stocks jumped 44% between January – April, as end-user demand tumbled during the financial crisis.

Their quick response suggests EU demand is weakening quite fast, as the Eurozone crisis continues. Equally, it confirms the slowing export trend, as China’s downturn continues.