Soda ash markets have undergone a
significant change as a consequence of the global financial
crisis. There has been a complete transformation of all market
parameters and it is possible that the effects of the downturn
will still be playing themselves out for some time to come.
Demand has slumped, pricing has
collapsed and trading patterns have been re-aligned. Moreover,
the market is having to come to terms with a landscape in which
there has been virtually an overnight switch from
unprecedentedly tight conditions before the recession to a
situation in which supply capability significantly outstrips
This is placing intense pressures
on a number of producers and is raising speculation that the
supply side may yet need to undertake some uncomfortable
restructuring before a long term sustainable equilibrium can
eventually be restored once again.
Where now?: Searles Lake, California, a source
of trona, amongst other minerals, which attracted
Nirma Ltd of India in 2008, in pre-recession
The run-up to global crisis
In the period before the financial
crisis, the global soda ash market departed from its
traditional stable trends and became significantly overheated.
A number of buyers experienced difficulties in procuring as
much product as they required and had to resort to making
enquiries to increasingly distant supply sources.
In some cases these searches were
in vain and consumers had to deplete their stocks almost to
undesirable levels; or alternatively had to operate their
factories at lower rates than market conditions would ideally
Accordingly, prices escalated to
levels that had never been seen before. Prices on the spot
market reached levels in excess of $400/tonne CFR in some
localities and these were around two to three times more than
the prices paid only a couple of years previously. Even buyers
with longer term contracts saw their prices rise to levels that
would have seemed inconceivable a short time before when soda
ash producers were fighting to stave off bankruptcies.
There was a conjunction of factors
that combined to bring about this situation. On the demand
side, there was strong growth for a period of years in China,
India, Eastern Europe and South America.
China, in particular, had seen
consumption growing in excess of 10%/year every year since the
Asian financial collapse before the turn of the century.
Indias economy was also being swiftly liberalised and
increasingly exposed to world trade and this led to healthy
growth in the construction and automobile sectors.
In Eastern Europe, some FSU
countries were seeing robust growth of around 4-8%/year as they
recovered from the massive slump after the break-up of the
In South America, a number of major
countries were increasingly moving away from the cycle of boom
and bust that accompanied major political and economic
These countries were therefore
magnets for inward investment into world scale glass plants,
among a number of other consuming sectors such as detergents
These developments absorbed a lot
of spare soda ash capacity that had caused prices to languish
at levels where producers were struggling to break even.
Nevertheless, on the supply side, there was a distinct
reticence among producers outside of China to embark on any
significant expansion of their production capacities.
The industry had passed through an
extremely difficult phase during the 1990s when projections of
demand were not realised and this left several players with
unwanted capability that had to be closed down or mothballed.
Some of these plants had only recently started coming back into
action while others may still never be operated again.
Moreover, certain major producers had gone into bankruptcy or
teetered on the brink as a consequence of this protracted
period of overcapacity.
Leading soda ash producers in 2010 (m. tonnes)
* Solvays capacity includes a plant in Russia: the
acquisition of this unit is pending approval however
||USA, Bulgaria**, France, Germany, Italy, Portugal,
Russia, Spain, Egypt
||India, USA, Kenya, UK
||Germany, Poland, Romania
||Turkey, Bosnia, Bulgaria**
** Bulgarian capacity is split 80-20 between the two owners,
Solvay and Sisecam
*** FMCs capacity at Green River is shown above: the
Granger unit is currently idled and is not included
Source: Harriman Chemsult
A further cause of caution among
Western soda ash producers in expanding their capability was
the difficulty in ascertaining with any degree of confidence
the strategy of the Chinese soda ash producers.
Experience had shown that the
Chinese players might pursue unpredictable and sometimes
counter-intuitive strategies that then have a knock-on
influence around the world far beyond the boundaries of the
Asian region. China has rapidly grown to become the
worlds largest producing and consuming country. In 2008,
it produced almost 19m. tonnes of soda ash compared with just
over 8m. tonnes in 2000, corresponding to an average annual
growth rate of just under 11%/year.
Nevertheless, most of this Chinese
output was consumed within the country itself. (This contrasts
with production of just over 11m. tonnes in the USA in 2008 and
domestic consumption of slightly less than 6m. tonnes.).
However, in addition to the rapidly
growing domestic demand, the Chinese producers also established
an increasingly significant presence in export markets: in
2008, they shipped more than 2m. tonnes into deep sea markets.
Most of this was delivered into the Asian region, which had
earlier been almost the sole preserve of the US exporting
On occasion, however, the Chinese
shippers adopted proactive strategies to displace sizeable
volumes of US soda ash from the South East Asian arena. This
product then had to be placed elsewhere with the likelihood
that sudden fluctuations in US product availability could
potentially impact pricing elsewhere in the world.
End end uses of soda ash (%)
Source: Harriman Chemsult
A tight market
The US soda ash industry is the
largest exporter in the world market with nearly 5.4m. tonnes
shipped in 2008. However, this apparent dominance also imposes
a measure of vulnerability as the export shipments then
accounted for some 45% of the US production. This manifests
itself as a cautious approach towards chasing volume
It is perceived that the US
producers prefer to maintain profits on conservative growth
projections rather than run the risk of an oversupply situation
that could cause pricing to collapse and margins to be
Thus, immediately before the
recession, the global soda ash market found itself in a
situation where there had been little growth in production
capacity outside of China for a period of some five to ten
The market was tight everywhere and
it was variously estimated that the global average operating
rate in 2007 and the first half of 2008 was around 96%. This
was extremely high by the normal standards of commodity
chemicals and meant that there was no spare capacity when
scheduled maintenance and unplanned outages occurred. The firm
balance was a significant contributory factor in the steep rise
of soda ash pricing that preceded the crash.
However, the market also saw the
onset of heightened cost-push factors. Soda ash manufacture is
a highly power intensive procedure and all producers were hit
hard by the escalating cost of energy. This applied especially
to operators of the synthetic Solvay and Hou processes that are
used outside of North America.
Despite the rapid increase in input
costs, the global soda ash supply side was in the comparatively
rare position of making good profits for the first time for
around a decade. The progressive improvements in demand and
pricing had transformed the prospects for many of the leading
players. Some had been seeking ways to exit the industry, but
instead a number of companies began tentatively to consider
ways of expanding their capacities.
Moreover, the transformation in
company balance sheets engendered an environment in which it
was more attractive to invest in the industry rather than to
disinvest. Nowhere was this more pronounced than in
World soda ash prices since 2006
Source: Harriman Chemsult
The leading Indian producers found
themselves to be cash-rich as a result of the buoyant Indian
market and they used their strengthened positions to become
players on a global scale. The most active of these was Tata
Chemicals Ltd which initially acquired Brunner Mond Plc of the
UK and then followed this up with the purchase of General
Chemical Soda Ash Partners Inc. of the USA.
Brunner Mond had around 1.3m. tpa
of synthetic soda ash capacity in Europe, together with a
further 700,000 tpa in Kenya based on natural trona ores at
Lake Magadi. General Chemical has some 2.5m. tpa of capacity
based on mined trona ores.
Together, these acquisitions
enabled Tata to leapfrog to second position behind Solvay SA in
the world league table of soda ash producers with a total
capacity of around 5.5m. tpa.
The diversified Indian detergents
company, Nirma Ltd, was also active in buying up one of its
smaller Indian competitors, Saurashtra Chemicals, and then
Searles Valley Minerals Inc. of the USA that has trona based
capacity of some 1.3m. tpa.
In a comparatively short time span,
the Indian soda ash industry took control of around 15-20% of
world soda ash production capacity.
Thus, in the immediate run-up to
the global credit crisis, prospects in the soda ash industry
were the most promising that anyone could remember for a very
long time. World soda ash demand was growing at the
unprecedented rate of around 5%/year, pricing was being
supported at record levels, and producers were generating
Production of soda ash by continent 2007-2010 (m.
Source: Harriman Chemsult
Consequences of the Crash
The aforementioned scenario was
transformed almost overnight. Credit dried up and hit all soda
ash end use sectors with the result that activity levels fell
away sharply. However, there was a multiplier effect since
players at all points along the supply chain ran down their
stocks of raw materials and finished goods to the bare minimum
in order to reduce their borrowing as much as possible.
This reaction fed back along the
pipeline and caused soda ash offtake rates to fall immediately
by as much as 30-50% in some cases. Sectors such as detergents
and glass containers had been considered to be almost
recession-proof since it is assumed that people continue to
wash clothes and drink beverages even when the economy is
However, even these sectors were
not immune this time around as producers, distributors and
retailers all cut their inventories as much as possible. Soda
ash supplies into these segments therefore initially fell by
some 10-15%. The biggest impact, though, was felt in the flat
glass sector as the withdrawal of credit had a
disproportionately large effect on automobile manufacture and
the construction industry.
A number of governments around the
world introduced incentive schemes to scrap old cars and
replace them with new ones as a way of supporting the industry.
This did have a beneficial effect on soda ash demand levels.
However, the damage in the construction industry has been much
more severe. Thus there are various estimates that shipments of
soda ash into the flat glass industry could remain depressed
for a couple of years more or even longer.
The effects of the recession on
soda ash demand have been felt most acutely in the mature
regions of North America and Western Europe. Consumption in the
USA in the full year 2009 was 15% down from the preceding year.
In Western Europe, it is estimated that demand fell by a
similar proportion, although the industry publishes no official
In Eastern Europe, demand in Russia
fell by 14% but some other East European countries were even
more adversely affected by the credit crunch and other factors
such as high energy costs. Thus soda ash demand in the Ukraine
fell by nearly 35% in 2009 compared with the preceding
Outside of Europe and North
America, soda ash demand proved to be more resilient. In Asia
and South America, demand fell steeply in the first half of
2009 but signs of recovery were already emerging in Q3 and by
Q4 they were well under way.
The performance in China was even
more impressive. In Q1 2009, Chinese soda ash demand was around
18% down from the same period of 2008. In Q2 virtually all of
this decline was recovered and consumption then continued to
increase for the remainder of the year. Demand in Q4 2009 was
some 12% more than the highest quarter of 2008. Taken overall,
Chinese demand actually increased by 2% for the full year 2009,
even when including the collapse in the first half of the
It appears that the Chinese
domestic soda ash market growth is now completely back on its
pre-recession track and other Asian and South American markets
are not far behind. However, current expectations are that it
will take considerably longer for the lost demand to reappear
in North America and Western Europe.
Another impact of the recession has
been on soda ash pricing. Availability has switched from being
scarce to significantly in excess of demand. Producers
accordingly now have to chase buyers rather than the other way
round. Pre-crisis prices in the Asian region were variously
around $300/tonne FOB but they were down to the vicinity of
$150-160/tonne FOB by the end of 2009.
There are signs, though, that
prices are now rising again. A similar story has unfolded in
Europe. The largest bulk buyers have seen their prices fall
from around 240-285/tonne FD to about
Pricing in North America, though,
was much less severely affected. This was because one producer,
FMC Corp., closed one of its plants to bring supply more
closely in balance with demand. Also, the industry generally
stepped up its efforts to export into the Asian and South
American regions so that there was very little unallocated
product in the North American regions.
The collapse of pricing has further
created an even greater problem for a number of soda ash
producers. Pricing has fallen to around the cost of production,
and even below in some cases, for producers in Europe and China
that are using higher cost synthetic production processes.
Thus, some producers are currently operating at negligible
profit margins, while others are actually running at a
In China it is calculated that much
of the industry operated at a loss throughout 2009. One
solution would be to shut down most of the significant surplus
capacity that exists in China. However, there is not a great
deal of optimism in industry circles that this will happen.
Chinese producers have on occasion been obliged to operate for
extended periods in loss-making conditions, which has
necessitated government intervention.
Moreover, there is sometimes an
external view that industrial enterprises in China are at least
as much about creating and sustaining employment as they are
about creating a positive margin on a balance sheet.
Consequently, while the loss-making condition of the Chinese
soda ash industry is causing some local disquiet, there are
questions surrounding how quickly this issue will be
The problems for the European soda
ash producers, in contrast, are seen to be much more acute.
They have to justify their losses to keen-eyed shareholders.
Unfortunately for them, their problems have recently been
intensified by the arrival of a large new 1m. tpa soda ash
plant that started up in Turkey in the middle of
2009 right at the height of the recession.
This has clearly exacerbated an
already intense over-supply situation and stimulated a round of
speculation that some difficult restructuring of the European
supply side will have to be undertaken at some time over the
next year or so.
Already one 300,000 tpa unit in the
Netherlands has been shut permanently and another two similar
sized plants in Romania and Ukraine have been idled for
extended periods. Yet the feeling is that these actions are
still far from sufficient to restore the market to a reasonable
How any restructuring of production
capability will be implemented is far from clear at the moment.
What is clear, though, is that it will be necessary to face
In the meantime, the US producers
remain comparatively unscathed by pricing reductions and
loss-making operations. Firstly, US operations have managed to
maintain a better balance between supply and demand within
their regional market. Secondly, US pricing has accordingly
softened to only a minor degree and, thirdly, and most
importantly, producers have a much lower cost production
process than the synthetic routes utilised in most of the rest
of the world.
The US producers manufacture soda
ash from vast reserves of naturally occurring trona ore at
Green River in Wyoming and from Searles Lake in California. For
them, the cash cost of production is around 40% of what it is
for the European synthetic route operators.
Consequently, despite the depth of
the recession, the US producers remain in a healthy financial
condition, which for them is a welcome reversal of the
situation in the 1990s and early 2000s when they were making
wafer thin margins and also some significant losses.
Nevertheless, taken as a whole, the
global soda ash industry has been left with a somewhat
undesirable legacy by the financial crisis. While other sectors
of the broader economy are progressively shaking off some of
the worst effects, the soda ash supply side is likely to face
difficult decisions for the foreseeable future Ð at least
in Europe and China.
Contributor: Roger Pechey,
senior consultant and soda ash market analyst, Harriman
Chemsult Ltd, London, UK.
Soda ash, or sodium carbonate
(NaCO3), maybe derived from mining natural deposits
(two main sources: the mineral trona from hard rock and from
lake brines), or more commonly, from synthetic processes,
normally the Solvay process, utilising salt, lime, coal, and
Soda ash is a commodity chemical
with a global demand approaching some 50m. tpa. Its major
application is in the glass industry, and around 50% of total
consumption is for the production of flat glass, container
glass, fibre glass and various other items such as
The flat glass sector is probably
the most dynamic of these as it goes into the construction
industry and also automobile production. Demand for window
glass can be especially robust when house building programmes
are vigorous and where highrises are being erected.
Fibreglass can also experience good
growth rates as this is used in fibre optics and building
insulation, although the market for these is much smaller than
that for flat glass. The container glass sector accounts for
roughly half of total glass production by weight but it is
continually seeing ongoing competition with plastic
Other significant applications for
soda ash occur in the chemicals industry, in soaps &
detergents, pulp & paper, flue gas desulphurisation, and
Most soda ash application areas are
relatively mature and therefore the demand for the product is
mainly influenced by wider economic trends. In the developed
economies of Western Europe and North America, demand growth is
usually lower than GDP trends.
In contrast, in the developing economies of Asia, the Middle
East, Eastern Europe and South America, growth is frequently at
or above GDP levels. In both cases, the demand for soda ash is
usually predictable and not susceptible to any significant