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World Soda Ash 2015: Order out of chaos?

By Laura Syrett
Published: Friday, 02 October 2015

Market assumptions which supported the global soda ash industry until 2008 have been upended as a result of the disruptive influences of the last economic recession, China’s GDP slowdown and shifting supply-capacity balances.

The global soda ash industry is going through a painful adjustment to challenging sector dynamics, characterised by regional supply-demand imbalances, price volatility and rising competition.

According to Marguerite Morrin, senior director for chlor-alkali and soda ash at chemicals consultancy IHS, like many raw materials, the soda ash industry is facing a "new normal" – although she questioned assumptions of what constitutes "normality" in a sector so sensitive to fluctuations in economic conditions.

Speaking at the IHS World Soda Ash Outlook in Barcelona, Spain, Morrin said that the industry had been resting on expectations that were no longer supported by market realities, largely because of the disruptive influence of China and the impact of the global economic recession in 2008-2009.

Normality for the soda ash industry, she said, was when soda ash demand was growing at a rate 2.4% per annum, led by demand for container glass and fuelled by oil prices in the range of $20-25/barrel (bbl).

Rapid economic growth in China turned these market features upside down, however, pushing up demand growth for soda ash to 4% per annum with the flat glass market accounting for the bulk of consumption. Oil prices averaged around $99/bbl between 2008 and mid-2014, meanwhile, increasing production costs, although the oil price has since collapsed to half this level.

Europe

In Europe, falling demand particularly from the CIS region has left the continent in a situation of oversupply, despite significant cuts to soda ash production capacity.

In the CIS, Russia saw demand slip by 2.4% in 2014, forcing local plant operating rates down to just 70% of capacity, while the market in Kazakhstan slumped by 18% last year and is likely to remain weak, Morrin said.

In Ukraine, which historically had three soda ash plants, one closed in 1998 and another shut its doors in 2009, triggered by the global recession. Russia’s annexation of Crimea last year contributed to severe disruption to transport routes used by Crimea-based CrimSoda and Group DF. The country is believed to have removed import duties on soda ash, although this has not been confirmed by IHS.

The consultancy assesses soda ash prices in Ukraine to be around $300-400/tonne on a CFR basis – significantly higher than averages of $225-250/tonne for Western European delivered values.

On a volume basis, Western Europe is leading the decline, with weaker glass and chemicals markets leading to a demand drop of 900,000 tpa soda ash on pre-recession levels. This is followed by the CIS, where demand has fallen by 450,000 tonnes since 2008 and finally Central Europe, which as seen consumption contract by a relatively modest 30,000 tonnes on the same comparison.

Collectively, this means European demand is down by 1.4m tpa although capacity has fallen even more steeply, by 1.9m tpa, from the market peak prior to the 2008 collapse.

Although European Union glass demand has recovered to some extent since then, production levels of 3.7m tonnes are still 10% lower than they were in 2007.

Overall European demand for soda ash, covering consumption in Western and Eastern Europe and the CIS, will reach 10.7m tonnes this year, IHS calculates, while capacity is expected to total 13.5m tonnes.

Middle East and Africa

Soda ash capacity in the Middle East, including Turkey, will exceed regional consumption by around 400,000 tpa this year, Morrin said, with demand set to reach about 2.5m tonnes against 2.9m tonnes of output.

Morrin explained that for Africa, a relatively immature market for soda ash, there is "no normal" for statistical comparison. Consumption rates range from around 0.6kg per capita in Nigeria to 3.2kg per capita in Egypt – where 130,000 tpa of domestic production looks likely to face stiff competition from an additional 3m tpa soda ash capacity in Turkey in the next three years – to 7.1kg per capita in South Africa.

Other producing countries in Africa, Botswana and Kenya, which supply some local demand but also send substantial volumes to export markets, are also facing tougher market conditions.

Some growth could come from an increase in domestic metals refining in Africa, although potential expansions, such as increased uranium mining in Namibia, have so far failed to materialise.

Asia

Excluding China, Morrin said that Asia remains a "sizeable market" for soda ash. She characterised the region as a combination of developed and developing countries, many of which are exclusively dependent on imports, which have seen supply affected by recent capacity closures in Japan and Australia – only partially offset by the opening of a new soda ash plant in Vietnam.

The Indian market for soda ash has arguably the greatest potential to expand in the near term, Morrin said, highlighting the country’s relatively robust economy, its gap in housing and its rapidly escalating wine and automotive industries – all of which are expected to support rising glass demand.

Indian soda ash consumption currently stands at around 2-2.5kg per capita, compared to 28kg per capita in the US, illustrating the room for growth. IHS estimates that Indian soda ash demand in 2015 will be 3.4m tonnes, compared to 3.1m tonnes domestic capacity.

Despite its reliance on imports to make up the shortfall, the country has imposed import duties ranging between $2.38/tonne and $38.79/tonne in an effort to protect its domestic soda ash industry.

US and South America

Despite high local consumption rates, the majority, or 56%, of US soda ash production is sold to export markets and shipment volumes have increased by 7% since 2010, Morrin said.

Here, domestic demand is still 800,000 tonnes below pre-recession levels – unlike in Western Europe, where container glass production is almost back to pre-recession levels, in the US, this sector has seen declining trends year-on-year. Morrin noted that there are some positive trends in container glass, such as the craft beer sector, which is seeing very positive growth in the last five years.

Morrin said that although 11 out of 47 float glass plants in the US shut between 2007 and 2014, flat glass demand is now "booming" in the US as new housing starts in the country hit an eight-year high in July.

South America is also a healthy market for soda ash, with 2.6m tonnes demand estimated for this year but just 250,000 tonnes local capacity. Mexico, in particular, has been identified as a solid consumer, with 1.3m tonnes of annual demand expected to grow by 3-4% to 2020.

A single synthetic soda ash plant in Mexico, operated by Industrial del Alkali, produces 285,000 tpa soda ash but almost all (99.9%) of its remaining 1m tpa consumption is imported from the US by rail.

Outlook

Morrin said that the soda ash industry would not return to what might have been considered normality, or at least stability, for the foreseeable future, although demand growth is expected to settle at around 2.5% per annum.

This growth will not be led by flat glass demand however, as it was in the past, owing to economic deceleration in China.

She predicted that Turkey will be the "new spider" in the global soda ash web, with locally-based Ciner Group due to add a further 3m tpa soda ash capacity to the market by 2018 with new natural soda ash plants at Beypazari and Kazan already under construction and, in addition, its acquisition of a 38% shareholding in US-based OCI Wyoming almost complete.

This will make Ciner the second largest soda ash producer in the world (at 4.478m tpa), after Belgium’s Solvay SA (which is expected to have a nameplate capacity to produce 7.45m tpa soda ash in 2018), and "could create chaos" in the market in the short term.

"When new capacity comes on stream, operating rates will come under pressure," Morrin warned, adding that "the closer you are to that new capacity, the harder it will be."

IHS soda ash forecast graph_IHS 
IHS predicts significant shifts in the global demand profile for soda ash (source: IHS).


 



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