Increased demand for vinyl-based building materials has helped drive up chlorine prices 35 percent to 40 percent and has producers working at near capacity to fill orders.

Many U.S. manufacturers now quote a chlorine price of $180 a ton, market sources said, up from $120 in September. With the October price increase, the third this year, chlorine's list price is about $100 higher than early in 1993.Such violent price movements are not unusual for chlorine, sources say. One reason is that a large portion of production, about 40 percent, is consumed

internally by chemical companies, reducing the buffer capacity that normally would absorb price shocks. Also, because of environmental concerns, chlorine is not stockpiled.

Another reason the price has risen, according to insiders, is that demand remains stronger than producers expected for chlorinated solvents, given approaching deadlines that ban their use, sources say.

The demand for vinyl products, meanwhile, remains particularly strong, said Marvin Osborne, the chlorine marketing manager for Olin Corp. in Stamford, Conn.

About one-third of all North American chlorine production is used to make polyvinyl chloride building materials, a significant amount of which is fabricated in the Far East from U.S. PVC. Increased PVC usage usually indicates a rising standard of living.

PVC consumption in developing regions of the Far East will increase about 7 percent this year, about three times the North American growth rate, said Mike Hassett, Occidental Chemical Corp.'s chlorine marketing manager. European PVC demand, however, remains weak, said Yu-Ren Chin, a chlorine industry analyst at SRI International, a Menlo Park, Calif., research com- pany.

Paul K. Raman, a chemical industry analyst with S.G. Warburg & Co. in New York, expects producers to retain most of the recent $60 a ton increase.

"My guess is $40 to $50 will stick," he said.

As the price rises, producers are struggling to meet demand. In August, domestic chlorine industry capacity utilization was 98 percent, up from 93 percent in August 1992, according to the Chlorine Institute, a trade group. Domestic production stood at 8 million tons for the eight months through August, up from 7.7 million during the comparable 1992 period.

Large price swings aren't unusual for highly cyclic chlorine and caustic soda, a co-product of chlorine production, said Leslie Littell, PPG Industries Inc.'s chlorine product manager. Pittsburgh's PPG, like Olin and Occidental Chemical, is a large chlorine producer.

To offset the price volatility, producers average the revenue of a unit of chlorine and a unit of caustic soda. This exercise is required to accurately determine a revenue flow, required for capital planning.

"We can't lose on both sides of the equation," Mr. Hassett said. For producers, the problem is that caustic soda prices have declined recently more than chlorine prices have increased. Caustic soda is used to neutralize acids.

Predictably, caustic prices have fallen to about $50 a ton, down from more than $150 during the first quarter. The price drop is due to excessive inventory, about 200,000 tons more than usual, held by domestic customers, said Olin's Mr. Osborne. Some of that inventory growth is attributed to increased imports, he said.

Excess inventory, in turn, is tied to relatively weak sales to the aluminum and pulp and paper industries, which are large users, sources said. Aluminum makers have been hurt recently by a surge in exports from the former Soviet Union; pulp and paper producers are reducing chlorine use because of increased environmental concerns.

As usual, spot prices for both caustic and chlorine have been even more volatile than contract quotes. Spot chlorine now costs almost $300 a ton, while spot caustic is available for as little as $30, sources say. Speciality chemical producers and small users generally are the major spot chlorine buyers.

Contract prices for chlorine and caustic soda, in fact, are more indicative of current conditions, because very little of each material is sold on the spot market, said Fran Brown, a senior associate with Charles River Associates Inc. of Cambridge, Mass., who recently completed an industry- sponsored study on chlorine usage. Contracts are periodically adjusted, however, to reflect spot prices, sources say.

About 60 percent of all chlorine is sold under long-term contract, with prices re-established every three months or so; most of the rest is consumed

internally by chemical producers. Chemical companies usually transform that chlorine into intermediate products.