Shifting trends reshape world soda ash market

The global soda ash industry is undergoing significant structural change, characterised by shifting capacity, the impact of rising costs for synthetic soda ash producers and developments in its core markets.

Changes in soda ash markets, including the way some counties export wine without bottles, are setting new trends in the worldwide soda ash industry (source: Baynham Goredama).

Figures from the US Geological Survey (USGS) peg world soda ash production (natural and synthetic) in 2013 at 53.2m tonnes, up from 52.9m tonnes in 2012. Of this, approximately 75% is derived from synthetic processes, while 25% is produced naturally, principally from deposits of the mineral, trona.

Worldwide average demand for soda ash is expected to increase by 3.3% per year between 2014 and 2024, IHS’ analysis shows, driven by increased consumption in the recovering construction and automotive industries, with China, the world’s largest soda ash producer, contributing almost 4% year-on-year growth to 2024.

Glass markets, which account for more than half of global demand, are expected to remain the dominant end use for soda ash, while chemicals and detergents will also remain important downstream consumers.

Patterns of trade for soda ash are beginning to experience more seismic adjustments, meanwhile, as higher cost production centres become displaced by cheaper, alternative sources, particularly in Europe and Australia, where domestic output makes way for supply from Turkey and the US, respectively.

Capacity closures

The closure of 360,000 tpa capacity at Tata Chemicals’ Magadi soda ash plant in Kenya in June, which mainly supplied the Indian market, with a large part going to the glass industry, has caused soda ash prices to rise in India, Vincent Pedailles-Ledoux, senior analyst at IHS, explained to IM.

“The Magadi plant was idled because of high energy costs. Local producers can try to increase production, but the closure left a big gap to fill in India” he said.

However, as Pedailles-Ledoux points out, the Kenyan facility has only been mothballed in response to current industry pressures, and Tata may bring the plant online again in the future.

The India-headquartered company’s cost pressures were not only felt in Kenya. In February 2014, Mumbai-based Tata also closed its 560,000 tpa Winnington soda ash plant in the UK.

This contributed to the UK’s soda ash imports rising by 155,000 tonnes in the first five months of 2014, more than three times higher than the corresponding total in 2013, when imports stood at 50,000 tonnes.

Of this, 40% was imported from Turkey, and 27% from the US, with the remainder coming from Poland and handful of other sources.

Elsewhere in Europe, in Portugal, the closure of Belgium-based Solvay’s 230,000 tpa Povoa plant in 2013 has resulted in a near-400% increase in imports between January and May this year, compared to the same period last year, as the country effectively no longer has any local production.

On announcing its decision to shut Povoa, Solvay said that the closure was part of a plan to rationalise its European soda ash operations and improve profitability, while expanding its lower-cost output capacity in Wyoming, US, by around 12%.

Australia, meanwhile, saw the loss of Penrice Soda Holdings’ 340,000 tpa Osborne chemical plant earlier this year, which Pedailles-Ledoux explained was one symptom, amongst others, of the downturn in Australia’s domestic glass industry.

In the country’s container glass market, for example, demand has been impacted by changes in the way the country exports wine.

“Australian wine is now exported in bulk, rather than in individual bottles, meaning that the local container glass market is pretty weak,” Pedailles-Ledoux said, but stressed that the wine trade is just one contributing factor to the Australian glass market’s overall weakness, which is also affecting flat glass.

Powder detergents, another important market for soda ash, are also losing favour in developed economies worldwide as consumer preferences shift towards using liquid detergents.

As part of a trend observed globally, in Australia this has meant that most of its formerly domestic detergent producers have moved to Asia’s emerging markets where production costs are lower and cheaper, powder products still account for the majority of detergent sales.

Australia now imports around 300,000 tpa soda ash, mainly from the US, as a cost-effective alternative to producing it locally.

Cost challenges in China

While global demand for soda ash is on a broadly positive trend, China’s domestic soda ash industry is struggling against a number of operational factors that are making production an unprofitable business.

“Prices for soda ash follow cost,” Pedailles explained. “The US has a huge advantage because of its low gas prices – these are expected to stay low for at least the next 10 years”.

China produced approximately 24.5m tonnes soda ash in 2013, of which IHS estimates 98% is synthetic.

High raw material costs, particularly for salt, have had a negative impact on margins in China. Lower coal prices have meant that Solvay-based producers are no longer operating at a loss, but these have not helped Hou-based producers back to profit.

The main issue for companies that use the Hou process is the cost of ammonia and the credit they receive from by-produced ammonium chloride.

In the past, the credit received from ammonium chloride in China covered the cost of ammonia for soda ash producers, but this ceased to be the case in 2008 and shows no near-term signs of rectifying.

Today, the credit Hou-based producers receive for ammonium chloride is two and a half times lower than the cost of ammonia.

This, Pedailles explained, is partly due to oversupply in the ammonium chloride and urea fertiliser business.

Estimates from major fertiliser producers and market tracking services suggest that urea prices are set to remain weak into at least 2016, thanks to structural oversupply in China, which in turn is likely to hold back the price of ammonium chloride and the corresponding credit for Hou-based soda ash producers.

“China exported the same volume of urea in the first two months of 2014 as it did in the first half of 2013,” US fertiliser company Agrium Inc. noted earlier this year, adding that Chinese shipments “will be a key driver” of the world urea market this year.

Pedailles-Ledoux said that while some Chinese soda ash plants may be subsidised by local governments, the country is likely to see part of its capacity shut down in the next few years as operating costs make many plants unviable.

US soda ash – a natural advantage

Soda ash is the US' largest inorganic chemical export, with shipments totalling around 6.5m tonnes in 2013, or around 58% of the country’s total production of 11.4m tonnes, according to the USGS.

All of the country’s natural material is produced from large trona deposits, mined and processed by four companies in Wyoming (FMC Corp., OCI Chemical, Tata Chemicals and Solvay) and one in California (Searles Valley Minerals), all of which benefit from low energy costs coupled with stable domestic and strong export markets.

South America and South East Asian markets are among the biggest consumers of US-produced soda ash, receiving 1.8m tonnes and 1.3m tonnes of exports, respectively, in 2013, data compiled by IHS shows.

The proximity of US soda ash exports to South America has negated the need for local capacity in this region, with a small amount of production from Argentinean producer, Alpat, being the continent’s sole internal supplier.

Europe is also importing more and more US soda ash, following the closures of its own local capacity.

Turkey’s projects face delays

While naturally produced US soda ash remains among the lowest cost in the world, Turkey is likely to become an increasingly important supplier to the European market as it develops large domestic deposits of trona.

USGS figures show that Turkey produced around 1.8m tonnes soda ash in 2013. IHS estimates that the local market consumes around 1m tpa, with 60% consumed by flat glass production, while 75% of the remainder is exported to Western Europe and the rest to Russia, the Baltic countries, India and the Middle East.

“It is clear that the new low-cost Turkish supply with a competitive cost base and low transport costs – relative to the US producers – will continue to influence the market. We just do not know yet to what extent,” Marguerite Morrin, director of global soda ash services at IHS said.

“Demand in Turkey is expected to grow by around 10% this year, led by the glass sector,” Pedailles-Ledoux notes.

“We expect exports from Turkey to decrease in 2015 because they will need more material to feed their domestic market,” he added

A number of projects to increase soda ash capacity in Turkey are in the pipeline, but most have missed their scheduled start dates.

Last year, Turkish producer Star-Kazan Soda Elektrik, part of the Ciner Group industrial conglomerate, announced plans to build the world’s largest soda ash production complex in the Kazan district near the Turkish capital, Ankara.

The trona deposits in this region are estimated to total around 1.6bn tonnes (at a grade of 30%, for 296m tonnes contained), with a mine life of around 40 years.

Phase one (1.5m tpa) of the 2.5m tpa Kazan facility was originally forecast to come online in 2014, but this start-up date has since been pushed back to the second half of 2018, ramping up to full production the following year.

“Work at Kazan for the two phased soda ash project has not yet started although the land is reportedly ready for construction,” Pedailles-Ledoux said.

“It is the same situation for Eti Soda’s 500,000 tpa project at Beypazari, where the estimated completion date has also been postponed,” he added.

Eti’s Beypazari soda ash plant, which was initially scheduled to come online in 2012, could be finished in the second half of 2016, according to Pedailles-Ledoux, although soda ash production in this area is already well established.

“Eti already have 1m tpa capacity from trona extraction at Beypazari and Soda Sanayii (Sisecam) has capacity of 1.1m at Mersin, via the Solvay process,” Pedailles explained.

As Turkish soda ash output rises, to a level where the country can afford to increase exports at the same time as satisfying growing internal demand, it is likely to become the supplier of choice for many European importers.

“The Turkish trona is very cheap to extract,” Pedailles-Ledoux explained. “Shipping material from Turkey to Northern Europe is still cheaper, for some, than producing soda ash domestically – although this varies depending on the country”.

According to Morrin, “synthetic soda ash producers are likely apprehensive about the further Turkish natural soda ash production developments as its increasing cost competitiveness poses a threat to the industry, particularly in valuable short-haul markets”.

In the meantime, however, Pedailles-Ledoux warns that the lack of new Turkish capacity coupled with greater internal demand could result in some tightening of the European market.

Synthetic soda ash – here to stay

Although naturally produced soda ash has a number of cost benefits over synthetic material in regions where it can be easily extracted and delivered, there is not sufficient supply of natural soda ash to supply the entire global market.

“Synthetic soda ash accounts for around three quarters of global consumption and is, therefore, here to stay,” Pedailles-Ledoux told IM.

The future of soda ash consumption is likely to remain dependent on its present key markets, including container and flat glass, detergents, and chemicals, such as sodium dichromate and sodium silicates, he said.

Less positively for struggling producers, he believes that there are no new meaningful applications for soda ash on the horizon for soda ash – “any new uses that do emerge are unlikely to require significant quantities,” he added.

IHS has recently published its 2015 World Soda Ash Analysis report, which is now available to clients.