Soda ash bounces back

By Jessica Roberts
Published: Tuesday, 23 August 2011

The revival of commodity markets and new demand in developing regions has stimulated soda ash sales to pre-recession highs; but recovery is built on muted Chinese competition, which threatens to make a return

 

Tata Chemicals Ltd’s soda ash facility in Mithapur, India. The group is the world’s second largest soda ash producer
Tata Chemicals Ltd

A major consequence of the financial downturn has been the reconfiguration of the manufacturing footprint of core mineral-consuming industries.

The resultant rationalisation - as markets such as automobiles, construction, and glass relocated part or all of their manufacturing centres to emerging markets - uprooted traditional supply chains.

The subsequent recovery in industrial output has been highest in these rapidly developing regions, where modernisation and wealthy middle classes are ensuring demand for anything from new housing to high-tech goods.

Soda ash has been no stranger to this reconfigured commodity landscape. Its end markets, comprising staples such as glass, detergents and chemicals, have been part of the rapid recovery in consumerism.

As a result, the alkali chemical - which can be produced from naturally occurring sources or synthetically via several chemical processes (see panel) - is exiting the deep market trough of 2009-2010 and is, on the face of it, emerging relatively unscathed.

“Demand in 2011 has been extremely encouraging in almost all markets with many key markets displaying robust demand growth,” Zarir Langrana, head of strategy and global marketing at Tata Chemicals Ltd, told IM.

“Producers in North America, India, Kenya, Turkey and parts of the European Union are running flat out and China too is running at optimal rates. Most markets remain snug in terms of supply/demand dynamics with some markets showing distinct signs of tightness,” he revealed.

Indian-headquartered Tata Chemicals is well-placed to comment on global trends, operating soda ash facilities in India, Kenya, the UK, and the USA, with a combined capacity of 5.3m. tpa - making it the world’s second largest producer, after Solvay.

“A key challenge for producers is dealing with and managing high raw material and energy input costs that seem to be impacting all producers in all regions,” Langrana explained.

The group has seen soda ash consumption grow in all markets, with developing regions - China, India, Latin America, and South East Asia - showing “extremely robust and healthy growth rates”, according to Langrana.

Demand drive

Figure 1: Eti Soda exports, 2010 Source:

 
Eti Soda
China is the world’s largest soda ash producer, with an output of 19.35m. tonnes in 2009 - meaning it dominates global capacity, accounting for almost half of all soda ash production. Its closest competitor is the USA with 10m. tonnes produced in 2009, after which fall smaller capacity countries such as Russia (2.3m. tonnes), Turkey (1.5m. tonnes), and India (1.5m. tonnes).

Global production estimates for 2010 vary according to producer but all are in agreement that consumption is recovering.

Bill Breunig, marketing and sales director of US trona producer FMC Wyoming Inc., believes that global demand in 2011 will be between 50-51m. tonnes: “That would represent a growth of 4-5% or a couple of million metric tonnes over 2010 levels.”

“The highest former level was in 2008, then demand dipped in 2009 with the global economic situation. Demand began to come back in 2010 and in 2011 we think demand will be above the 2008 levels - which was 48.5m. metric tonnes,” Breunig told IM.

A US trader forecast that global demand in 2011 could rise by 5% on 2010 levels, “which itself increased by 9% over 2009 figures”, the source said.

“Demand across all end-use sectors is strong, being led by glass for construction and automotive in emerging markets, and likely to be sustained through 2015,” the trader told IM.

“Consumption is growing robustly in all developing and emerging markets, and in fact stronger than expected in Japan and South Korea as well. Europe and North America are running higher than last year despite all the negative press about debt and default,” he added.

Turkish newcomer Eti Soda AS has also reported strong demand in 2011 compared to the previous year, noting that supply has tightened “mainly due to Chinese production bottlenecks”.

“China, India, Russia, South America and developing countries are growing,” Sinan Solaklar, Eti Soda’s sales and marketing director, told IM. “Europe and the USA are at the same level as last year.”

Interestingly, views of the European market range from ‘stagnant’ to ‘recovering’, with domestic producers most optimistic about the region’s health.

During the group’s analyst conference call in late June, Vincent Decuyper, group general manager of Solvay’s chemicals sector, said that the producer saw a “clear difference” between Europe and the USA: “On the domestic market we see clearly a recovery of the demand in Europe, and it’s more pronounced in the northern part than in the southern part, but globally in Europe there is a clear improvement of the demand.”

“While in USA clearly the domestic market and its link to the construction activities still remains [very mute] and with no significant improvement of the soda ash demand,” Decuyper said.

The group believes that both European and US markets have been sustained by export demand from Latin America and Asia - something it is experiencing first hand.

US upswing

Solvay is the world’s largest soda ash producer, with a 7m. tpa output that is sourced from plants in Bulgaria (joint venture with Sisecam), China (j-v with Tianjin Soda Ash Plant), Egypt, France, Germany, Italy, Portugal, Spain and the USA. In the USA it operates a trona facility from the Green River basin in Wyoming and holds a mothballed soda ash solution mining site in Colorado, where production was stopped in 2004.

Although the USA has slipped behind China to become the world’s second largest soda ash producer, it remains the single largest source of natural soda ash - largely produced from the Green River basin.

Around 47bn tonnes of recoverable trona ore are located in beds over an area of 1,000 square miles in the region - enough to supply the world’s soda ash needs for several hundred years - formed from the evaporation of an ancient water body, Lake Gosiute.

The region is mined by four companies; in addition to Solvay Chemicals USA, other producers include FMC Wyoming Inc., OCI Chemicals Corp., and Tata Chemicals (Soda Ash) Partners. Collectively, the latter three comprise the members that form export arm American Natural Soda Ash Corp. (ANSAC), established in 1984.

The USA’s other major soda ash producer is Searles Valley Minerals in California, owned by Nirma Ltd of India, a solution miner that produces soda ash, sodium sulphate, and boron minerals with a total capacity of about 2m. tpa. Combined, the USA’s soda ash producers have a nameplate capacity of 14.5m. tonnes, according to the USGS.

Although China is the world’s largest producer, the USA tops the soda ash export market - shipping about 5.4m. tonnes in 2008 (45% of production), according to Harriman Chemsult. This reliance on exports has proven to be a source of vulnerability in the past, but as Solvay inferred to investors, it has buoyed US producers over the last 18 months.

“After [the USA] went through the 2009 downturn, exports for the first time exceeded domestic consumption in 2010,” said FMC’s Bill Breunig. “We exported 51% of production in 2010.”

US producers reported significant falls in demand in 2009 as the financial crisis took hold and the expanding commodity bubble finally burst. The domestic market dropped by around 15% that year, only recovering 5% in 2010 with “slow growth” reported in 2011 - perhaps a 1-2% increase, Breunig forecast.

Despite a muted domestic market, US soda ash companies have enjoyed strong demand and bullish prices - and the country is running at its “full effective capacity” - largely because of its export position.

In evidence of this, FMC restarted production at its idled Granger facility in July 2011. The plant is running at an initial capacity of 500,000 tpa but FMC announced that work has started to ramp up the facility’s output to 1.2m. tpa over the next few years.

“We’re doing this because we can compete with China and China actually has had to back off,” Breunig explained. “The Chinese are probably operating at 80% of capacity right now.”

“If you go back 10 years ago, this situation would have been the reverse - the Chinese operated nearly all manufacturing at full capacity, and would ship at or below variable cost,” Breunig commented. “The Chinese are willing to sit on capacity rather than ship at a loss today, but their cost position was better a few years ago.”

Breunig’s projections for 2011 indicate that the USA will increase its exports - “probably to around 52%” - because of the sluggishness in US consumption paired with the competitiveness of US-sourced soda ash overseas.

Market participants report that FMC is not the only US soda ash producer planning to increase capacity, with a local supplier telling IM: “Other ANSAC members are evaluating projects as well for 2014/15 start-up - though formal announcements of the same are pending.”

Although Solvay exited ANSAC this year, it still supplies the export body - and its mothballed operations in Colorado could be a contender for new supply. Aside from Solvay, the obvious candidates for additional capacity are Tata and OCI.

Turkish target

The European soda ash market has also witnessed the emergence of a strong exporter, in the form of Turkish newcomer Eti Soda AS - a joint venture between state-owned Eti Mining (26% ownership) and private entity Ciner Group, which holds the bulk of Eti’s ownership at 74%.

Eti Soda, which was created in 1998, burst onto the soda ash scene in 2009 - almost achieving its 1m. tpa target in its first full year of production. The company exported 93-95% of its total output, selling 87% of this to European markets (see Figure 1) - with 40% of this going to Spain and Portugal alone.

Until then, Soda Sanayii AS was Turkey’s sole producer of soda ash, with a 1m. tpa synthetic-route plant based in Mersin, in the south of the country.

“2010 was a very important year for us to get the product right,” Sinan Solaklar, Eti Soda’s sales and marketing director, told IM. “Customers are now convinced that we are a reliable source of soda ash for Europe and the Middle East.”

Eti’s foothold in the European market has been to the detriment of established soda ash sources, such as UK-based Brunner Mond (owned by Tata Chemicals). Brunner Mond closed its 420,000 tpa capacity Delfzijl operation in the Netherlands in September 2009.

At the time, a Brunner Mond spokesperson said that the Delfzijl plant had been operating at a loss since 2003, owing to a number of factors including increasing energy and other raw material costs, and the “highly competitive market environment” for its products - no doubt worsened by the entrance of a new low-cost, natural soda ash player.

Critics at the time saw Eti’s ambitious production targets as reckless - flooding the market with new product during the peak of the recession. But now it appears the strategy was successful, and perhaps Europe’s cries of soda ash ‘oversupply’ were too strongly stated.

Glass demand strong

Although domestic markets account for only 5-7% of Eti’s output, domestic glass production could be a significant consumer over the next few years, with Turkish glass producer Sisecam revealing it is looking to make major investments in 2011, in line with its plan to expand its market in Asia and the Middle East. In addition, Sisecam is aiming to be in the top five of flat glass producers globally; it is currently ranked seventh globally and fourth in Europe.

In 2010 the company reported a growth of approximately $0.45bn from 2009 to $2.80bn. This is marginally below 2008 levels ($2.88bn), but precedes pre-recession levels. Growth is mainly driven by exports and foreign production, which follows planned investment in the region.

This includes the completion of a new furnace in the company’s Russian plant for glass packaging and investments into the company’s joint venture with French construction giant Saint Gobain.

Meanwhile in Turkey, the company will add a fourth furnace to the Yenisehir plant for glass packaging. In Trakya, Bulgaria, additions will be made to the company’s second float line for flat glass.

The group said that it wished to expand to a wider geographical area and increase product diversity “with a focus on processed flat glass through strategic alliances and acquisitions”.

China

China is the world’s leading soda ash producer, sourced from companies such as Shandong Marine (2.5m. tpa capacity) and Tangshan Sanyou (2m. tpa capacity). It has rapidly emerged onto the soda ash marketplace - its capacity doubled to 24m. tpa in only a decade - although most of the country’s production is consumed domestically.

In the last few years its presence on the export scene has picked up, however, and in 2008 Chinese producers shipped over 2m. tonnes of soda ash to deep sea markets. This export growth has been a cause for concern for US suppliers, which have traditionally held much of the exports to the Asian soda ash sector.

Yet the balance of power is shifting again.

“A couple of things have changed over the past few years,” FMC’s Bill Breunig told IM. “Chinese costs - well documented on energy, labour - have continued to increase. The renminbi continues to strengthen. So when we compete with the Chinese in the Asian market our competitiveness has increased - we’re able to compete with them everywhere,”

“Regionally, what we see is growing demand in China, which will probably be up about 8% this year, to around 20m. tonnes - that the biggest growth engine,” Breunig explained. “The rest of Asia has been strong so far, up around 3-4%, although this has been weighted down by Japan.”

Chinese whispers

Leading producer Solvay has also seen a shift in the Chinese market, with Vincent Decuyper commenting that demand was “quite flat” in the first part of 2011. However, Decuyper added that the demand slowdown had been accompanied by “even stronger constraints” from the Chinese government on the soda ash industry.

“There are even rumours now that no new soda ash production unit could be allowed for the time being,” Decuyper said in the analyst conference call, adding that the Chinese government was considering forbidding any further increases in soda ash capacity - in line with the country’s energy policies.

The Chinese government’s attitudes to soda ash production, while officially leaning towards curtailment, are often difficult to predict. China’s 12th five-year plan, for the first time, changed the soda ash industry’s classification to that of ‘energy-intensive’ - these industries are urged not to invest in production for purposes of export, because they are essentially exporting energy outside the country.

But overseas producers are sceptical. “I question China’s ability to execute on the contents of its five-year plan,” FMC’s Bill Breunig told IM.

“You get conflicts at a local level when there’s someone who wants to invest in a soda ash plant, and they want to encourage employment, and give incentives through tax etc, but the plants seem to get built even though they don’t meet certain criteria of the central government,” he said.

However, the central government’s harsher stance may be having some effect. It is understood that the year-to-date Chinese exports are annualising at about the same level as 2010, despite forecasts that the country’s exports this year would increase - partly because the USA was supply-constrained.

“So far, over the last two months especially, Chinese exports were just about 100,000 tpm whereas normally we would expect them to be more around 150,000 tpm,” an exporter told IM. “Chinese producers were at this level earlier in the year but over the last couple of months this level has dropped back.”

He added: “Producers seem to want to get better value for their products.”

Market outlook

Arguably, end user demand is the one factor not troubling soda ash producers at present. One UK trader told IM: “End user markets have projected higher demands and all of our clients are performing beyond budgets.”

“The European market was slow due to the construction industry’s decline, but this has now picked up, and the UK’s flat glass market is performing well due to depreciation of the sterling,” he commented.

High demand has been echoed worldwide. Tata Chemicals’ Zarir Langrana concurred: “Both the container and flat glass markets across the globe have returned to growth and in the developing regions new fresh investments are being made to grow these businesses on the back of strong fundamentals.”

“The detergent market too remains healthy and consumer demand is strong driving the use of effective ingredients such as soda ash,” Langrana told IM. “The minerals and mining industry across most regions has also now recovered and will further fuel the demand for soda ash together with newer applications in the lithium, shale gas, and air pollution abatement areas.”

Langrana revealed that prices have firmed throughout the year in all markets, with “strong signals” from producers that their top priority is managing input cost pressures - both raw materials and energy - in a manner that “ensures reinvestment” in growing their business to keep pace with increasing soda ash demand.

“This would mean further upward realignment of pricing, moving forward, supported by favourable market dynamics,” Langrana explained.

The key issue for European producers is keeping production costs down and profits up. Domestic demand is improving and exports are healthy - so producers should have the power to implement price rises, if supply/demand remains balanced.

Of course, any increase in prices adds to the temptation for China’s muted export market to surge its output once more - though considering US production is cheaper at present, this could lead to a pricing stand-off between the two regions. The question is who is more likely to sacrifice profits in favour of market share.

Selected soda ash supply movements




Soda ash at a glance

Soda ash, or sodium carbonate (Na2CO3), is an alkali chemical that can be produced from naturally-occurring sources (such as the mineral, trona, or sodium carbonate-bearing brines) or produced synthetically from several chemical processes - normally the Solvay process, utilising salt, lime, coal, and ammonia. Sodium bicarbonate is an intermediate product of synthetic soda ash production that may be separated.

Soda ash grades

Dense soda ash:
used in flat glass, container glass and detergents as a premium quality product that has a high sodium carbonate content combined with very low levels of impurities such as chlorides and iron. Particle size is around 250-300µm with a pouring density of 1,050-1,150kg/m3.

Medium dense soda ash: used primarily in detergents and chemicals as an alternative to dense soda ash or synthetic light soda ash. Medium dense grade can absorb high levels of liquid, and unlike lighter synthetic soda ash it does not have the same dust issues. An advantage of medium dense soda ash is that it can be shipped in bulk rather than in bags.

Light soda ash: used primarily in detergents, with a particle size of 80-100mm and a pouring density of 500kg/m3.

By-products: the production and processing of soda ash co-produces additional sodium compounds such as sodium bicarbonate, sodium sulphite, sodium tripolyphosphate, and caustic soda.

Markets

Glass manufacturing:
glass production accounts for almost 50% of global soda ash demand, divided roughly into 21% flat glass, 22% container glass, and 6% other glass, according to Harriman Chemsult.

Soda-lime silica glass is the most common glass type, which itself is used in automobiles and windows (flat glass), glassware, lighting, televisions, and other specialist goods.

Soda-lime silica glass combines silica sand (the oxide) with lime (chemical stability), while soda ash is the flux used to reduce the melting temperature of silica.

Dense soda ash is an ideal product for glass manufacturing because the particles are similar in size to silica sand. This enables a homogeneous mixing of raw materials and results in a high quality end product.

Detergents and soaps: medium dense or lighter soda ash grades tend to be used in detergents, which accounts for around 15% of soda ash demand. The chemical is a common additive in many detergents and cleaning products, as it prevents hard water from bonding with the detergent and is effective at removing grease and stains from textiles. Soda ash also adds benefits as an agglomerating aid, a carrier for surfactants and as a source of alkalinity for pH adjustment.

Chemicals: around 15% of soda ash production is used in chemicals, as it is the least expensive soluble alkali and is a good source of sodium ions for the production of sodium phosphates, sodium silicates, chrome chemicals and photographic chemicals.

Soda ash is used in the production of sodium bicarbonate, which itself serves numerous markets including beverages, coatings, detergents, food, dialysis, and personal care. Soda ash may also be interchangeable with caustic soda in applications such as pH adjustment, acid neutralisation, and flue gas desulphurisation.

Other markets: plastic foams, fire extinguisher powder, animal feed.

Soda ash end markets (48.5m. tonnes in 2008)



Source: Harriman Chemsult, 2010


Soda ash price trends

Burgeoning demand and rising energy costs have led to higher soda ash prices globally. This, in turn, has led to some producers adjusting their 2012 outlook as the market continues to tighten.

“For 2012, at least in Europe, we are going to have a real shortage of soda ash,” one European producer divulged to IM. “The price increase is estimated to be more than Û25/tonne.”

“Volumes of soda ash are very good; we are running at full capacity and out of stock,” the producer said.

In the USA, ANSAC - the American soda ash group that handles production from three of the country’s producers - raised its prices by $50/tonne at the start of Q3 2011.

Meanwhile, Australian producer Penrice upped prices by $25/tonne on 1 August. Its new list prices are: A$560/tonne for dense soda ash (bulk), A$640/tonne for light soda ash (bulk), and A$680/tonne for packaged soda ash, all ex-works, Osborne, South Australia.

The consensus on the marketplace is that soda ash prices will continue to rise owing to high demand and tight market conditions - compounded by Solvay’s recent force majeure incident in Wyoming, USA (see table - supply developments), estimated to have affected 10,000 tonnes of supply.

Soda ash prices, 2009-2011