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US manufacturing's decline a little less caustic

It won't appear in the headlines anytime soon. But the price of caustic soda is down for the first time in months, which usually is good news for the US economy.

Indeed, the contraction in American manufacturing appears to be slowing, according to a new report Wednesday by the Institute for Supply Management. The ISM's overall index of purchasing reports rose slightly from 35.8 in February to 36.3 in March.

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That reading still signals decline, just not quite as sharp.

The lye indicator

Which brings us to caustic soda. Manufacturers use the stuff (also known as lye) to make pulp and paper, textiles, even detergent. Lye also makes a good drain cleaner.

Because caustic soda is a byproduct of chlorine manufacturing, a decline in its price usually means an increase in chlorine production. Manufacturers use chlorine to make water-treatment chemicals and PVC pipe, which is used in home construction. So when new homes get built, manufacturers make more chlorine. That means they have more caustic soda to sell and its price goes down.

Price decline
But with the plunge in new-home construction, chlorine production has sagged. For nine months last year and one month this year, soda's price went up. No surprise. In December and January, it was flat.

Now, with the price rise in March, is homebuilding making a comeback?

Well, not yet.

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"It's probably not the demand for PVC that's driving it," said Norbert Ore, chairman of ISM's manufacturing business survey committee, in an interview. Instead, a boost in lye imports from Europe and Asia seems to have moderated prices.

So now we're importing drain cleaner? Go figure. It's still a caustic economy.