Chinese soda ash: Mission creep

China’s soda ash industry has set its sights on a larger share of the global market. Although it has scaled back its capacity expansion plans considerably in the last year, production levels are still rising and the country’s producers are looking for external markets to offload material that cannot be consumed domestically.

According to Marguerite Morrin, senior director of chlor alkali and soda ash at IHS Chemical, China produced 25.28m tonnes soda ash in 2014, although total capacity in the country stands at around 32m tonnes. IHS estimates that China exported 7-8% of its soda ash production last year, with 90% going to Asian markets: of this, 17% went to the Indian sub-continent; 27% to northeast Asia; and 45% to Southeast Asia.

Chinese exports to Asia are increasing and, significantly, encroaching on the market share of the American National Soda Ash Corp. (ANSAC) – the marketing body in charge of exporting US-produced soda ash. For its part, the US produced around 11.66m tonnes soda ash last year and is the single biggest exporter of the material in the world, accounting for 49% of all soda ash traded globally. Around 36% of US exports go to Asia, having increased significantly since 2011. In 2014, US soda ash exports were higher by 43%, or 348,000 tonnes, than they were in 2011, whereas Chinese exports had only increased by 18%, or 137,000 tonnes, over the same period.

This year, however, China has been much more aggressive with its exports, and its share of the Asian market has grown much more rapidly than that of the US.

"In the first five months of 2015, the US was still a bigger supplier to the rest of Asia (excluding China) than China," Morrin told IM. "But Chinese volumes to Asia have increased by 200,000 tonnes, or 34%, whereas US exports in this period only grew by 33,000 tonnes, or 3%." 

"The single biggest increase in Chinese exports in the first six months of this year was to Indonesia, where volumes increased by 52,000 tonnes, or 73%. The second biggest increase was to Bangladesh, with volumes up by 48,000 tonnes, or 66%," Morrin explained.

China’s soda ash industry is at a cost disadvantage compared to the US, which produces the material from natural mineral (trona) deposits in Wyoming.

China, by contrast, has very little natural soda ash production and makes most of its material synthetically from limestone and salt, using either the Hou process (developed by Chinese chemist, Hou Debang, in the 1930s, which produces ammonium chloride as a by-product) or the Solvay process (developed by Belgian chemist Ernest Solvay in the 1860s, requiring less energy and fewer raw material inputs than the Hou process, but without the ammonium-chloride by-product). 

According to Morrin, in 2014, 45% of Chinese soda ash was produced via the Hou process while 48% came from the Solvay process. 

Asia soda ash imports from US and China (January-May 2015)

Source: IHS

Chinese overcapacity

The increase in Chinese exports is due to a combination of excess domestic capacity and a decline in local demand. Because the main market for soda ash is glass manufacturing, its consumption is linked to the construction market, which has effectively stalled in China.

According to the RICS China Construction Market Monitor, Chinese construction stabilised in the first quarter of 2015, after two consecutive quarters of decline. Early indications for Q2 suggested that the market remained flat during this period, although house prices had started to inch up.

"Continuing weakness in the wider economy has affected the prospects of the construction industry. More specifically, the residential and commercial markets have witnessed a continued downward trend, which is unlikely to improve notably this year," said Andy Wu, senior economist at RICS. 

"Looking ahead, the construction market is expected to remain flat at best this year and then show some pick-up next year," Wu added. This, combined with a slumping automotive market, which contracted by 6.6% in July, has had a knock-on effect on the glass industry.

Nearly a quarter of all Chinese glass companies saw their profits shrink in the first half of 2015. For flat glass, Chinese production dropped by 3.9% year-on-year (y-o-y) in H1 this year, while annual demand growth declined from 11.3% in 2013 to 1.1% in 2014, and is expected to fall into negative growth this year, pushing the market into depression and leaving a gap in soda ash demand. 

Even though the country already produces more soda ash than it consumes and prices are falling, production capacity continues to rise at a rapid rate. More than a million tonnes is set to be added to China’s soda ash output by the end of this year, with additional supply expected to come, for instance, from China Salt Kunshan Co. Ltd and Qinghai Salt Lake Magnesium Co. Ltd, which are each scheduled to commission new production lines of 600,000 tpa. 

The recovery of the ammonium chloride market, helped by a relaxation in Chinese export policies for the material and the introduction of a 5% flat export tax replacing a seasonally variable rate, has also boosted soda ash output. 

"Ammonium chloride prices have been very weak for a number of years," Morrin said. "Recently, though, prices have improved, which has given a boost to the Hou-based producers – this is also supporting the strong exports that we have seen recently." 

In the Hou combined-soda process, the output ratio of soda ash to ammonium chloride is 1:1 and the rising price of ammonium chloride has pushed previously loss-making producers of soda ash into profit. According to China Customs data, in H1 2015, China exported 576,056 tonnes ammonium chloride, up 189.3% y-o-y.

It is hoped that, by increasing exports, Chinese soda ash producers can ease some of the pressure on their mounting inventories, with estimates placing the country’s present overproduction at somewhere between 5m and 10m tpa.

Global demand

In its "2014 Chemical Soda Ash Analysis" report, IHS forecast that global soda ash demand will increase by 34% from 55m tpa in 2014 to 73m tpa in 2023 (a 2015 version of this report was being prepared at the time IM went to press), which may absorb some of China’s additional capacity. 

However, Chinese market observers have suggested that the rate of increase in consumption is not expected to keep pace with China’s production, and with large new projects set to come on stream in Turkey by 2018 and US output showing no signs of slowing down, there is likely to be competition for market share.

ANSAC did not respond to requests for comment when contacted by IM, but the corporation has been vocal in its support for US trade policies that aim to protect and promote domestic soda ash producers.

In May this year, ANSAC applauded a US Senate vote to begin debating the Bipartisan Congressional Trade Priorities and Accountability Act 2015, also known at the trade promotion authority (TPA), which aims to set priorities for US trade negotiators and allow free trade agreements to be brought to Congress without amendment.

"Allowing Congress to assert its authority over ongoing trade negotiations paves the way for future passage of new free trade agreements," said Christopher Douville, ANSAC’s president, following the vote on 14 May. "Such agreements are vital for the elimination of foreign market access barriers for soda ash and the continued growth of US soda ash exports," he added.

Other recent policies have included The American Soda Ash Competitiveness Act, introduced by California congressman, Paul Cook, in April, which would reduce government royalties on soda ash from 4% to 2%, fixed for the next five years.

Cook said that China was becoming an ever more dominant soda ash presence, thanks to its "heavily subsidised" domestic industry – referring to the credit Chinese manufacturers receive for ammonium chloride production – and that the US needs find ways to maintain market share.

"While American soda ash is found naturally, Chinese soda ash is produced synthetically. Chinese synthetic production uses twice the energy which results in over three times the carbon emissions as natural soda ash production," a US Government press release on the matter said.

In a statement on his personal website, Cook said that protecting the US soda ash industry was a matter of national security. "This is an important bill that will protect a vital industry, grow jobs, and do this with little impact to the federal budget. [Soda ash] production is a $1.8bn industry within the US, providing over 3,000 direct jobs," he outlined.

India has also raised concerns about the threat of Chinese exports to its domestic soda ash industry, which is likewise based on synthetic production, and currently benefits from an anti-dumping duty (ADD) on imports, although this is set to expire in 2017.

India produced 2.375m tonnes soda ash in 2013-2014, according to official estimates, and local manufacturers have plans to increase this to 4m tpa before the ADD is lifted. Industry leaders have also indicated their intention to approach the government and request an extension to the tariff, in a bid to protect to the domestic market. On 21 July the All India Glass Manufacturers Federation (AIGMF) initiated an anti-dumping review to determine whether the ADD should remain in place, giving relevant parties 40 days to respond.

Soda ash prices

This decline in demand has also been reflected in prices for Chinese soda ash. China’s export prices for dense and light soda ash weakened in July as Chinese producers cut offers by around $5/tonne in an effort to stimulate demand.

At the time IM went to press in late August, FOB China prices for soda ash (dense and light) stood at $210-230/tonne. This was at odds with the US industry, where producers reported stronger international pricing in H1.

Industry participants have diverged in their outlook for prices for the remainder of this year. US-based suppliers have suggested that there is still some margin for growth, but others have warned that the rise in Chinese export capacity may erode selling values sooner than predicted.

Soda ash

Sodium carbonate, popularly known as soda ash, is a white, crystalline soluble material with the chemical formula Na₂CO₃ and is an essential ingredient in the manufacture of detergents, soaps, sodium-based chemicals, float glass, container and speciality glasses, silicates and other industrial chemicals. It is also widely used in textiles, paper, metallurgical industries and desalination plants.

Soda ash is produced in two forms – light and dense – the difference being bulk density and their respective uses. Dense soda ash has a bulk density of around 1 tonne/m³ and a particle-median-diameter (D50) of 300-500 microns and is the preferred grade for glass making. Light soda ash has a bulk density of around 500kg/m³ and a D50 of approximately 100 microns and is favoured for detergent and chemical applications.

In developed economies, where liquid detergents have overtaken powders as the cleansing agents of choice, glass tends to be the main driver of soda ash consumption. In emerging economies, particularly in Asia, detergent and soap applications still account for a significant proportion of soda ash consumption.

Soda ash can also be either natural or synthetic. Natural soda ash is made from Na₂CO₃-containing brines or from the naturally-occurring mineral, trona. Synthetic material is produced via the ammonia-soda (Hou) process or Solvay process from salt and limestone. Both end products are essentially the same, but natural soda ash tends to have a cost advantage over synthetic material, owing to lower energy and raw material inputs.

The world’s largest producers of natural soda ash are the US, which produced 11.66m tonnes soda ash in 2014, according to IHS, and Turkey, which produced 2m tonnes last year, based on figures from the US Geological Survey (USGS), with smaller volumes coming from Kenya (420,000 tonnes in 2014), Mexico (290,000 tonnes) and Botswana (250,000 tonnes).

Major manufacturers of synthetic soda ash are China and India.