Eti Soda’s supply myth: how the market never moved to oversupply

By Michael Greenfield, Michael Greenfield
Published: Thursday, 17 May 2018

Fears that Eti Soda could create an oversupply in the soda ash market and send prices tumbling have not been realized, but questions remain about how the market so readily absorbed the additional tonnages that are being produced, and what will happen next.

The expansion of Eti Soda’s Beypazari asset and the Kazan Soda greenfield project, first announced in January 2013, has been the sole focus of the soda ash industry for many years, to the extent that the annual soda ash conference was once described to Industrial Minerals as "the Eti Soda roadshow."

The addition of a combined total of 3 million tonnes per year of soda ash to global supplies from the two sites in Turkey was forecast by many companies to cause soda ash prices to crash. Yet Eti Soda remained adamant that prices would not be pushed down by the opening of its additional capacity.

The extra product volumes were forecast to reach the market by early 2018, and while new volumes of material from Beypazari reached the market by the fourth quarter of 2017, the Kazan plant is still being ramped up.

Research and analysis firm IHS had predicted a fall of €27 ($32) per tonne in the European price of soda ash due to the new supply, but in reality there was only a "€6-7 per tonne decrease, although some contracts rolled over at the beginning of 2018," according to one market participant.

Industrial Minerals assessed the price for soda ash, European synthetic, dense and light, large contracts at €190-210 ($224-248) per tonne ex-works on March 1 this year, a level that it has maintained. It had been steady at €180-200 per tonne for at least two years before then.

With prices now moving up, and the market bullish about prospects for further increases, it seems that the 3 million tpy of additional supply has been quite easily absorbed.

One reason for this is that the entry of the new supply to the market was drawn out, cushioning its effect on prices.

Originally, the new capacity was scheduled to begin to come on stream by the end of 2017 before ramping up to full capacity in the early part of 2018. But midway through 2018 we are still waiting for Kazan Soda to achieve production to match its nameplate capacity of 2.5 million tpy.

Robust growth in global demand for soda ash, of 2.1% annually, meant that additional supply of more than 1 million tonnes was required in 2017, and the same increase will be needed again in 2018. Together, these requirements mean that one-third of the forecast additional output from Turkey will be absorbed each year.

Meanwhile, a reduction in the volumes of China-origin product available in the international market, brought about by environmentally motivated production cuts, has led to a supply shortage. The new Turkish output can help to offset this.

The fall in Chinese output coincides with a spike in demand for soda ash in the East Asian country, which grew at 7% in 2017 according to Ciner Resources, a subsidiary of Ciner Group which is the world’s largest natural soda ash producer and the parent company of both Eti Soda and Kazan.

At the same time, the arrival in Europe of soda ash produced in the United States, before the Turkish plants came online, softened the shock to prices that could have been created by reduced Chinese supply, because it meant that demand was still being met.

Delayed new supply

The expansion at Beypazari, in the Turkish province of Ankara, raised Eti Soda’s capacity to 1.5 million tpy from 1 million tpy, with the additional volume reaching the market late in 2017.

The Kazan plant’s first production line became operational late in the fourth quarter of 2017, bringing online capacity for 500,000 tpy of its projected 2.5 million tpy. By the beginning of 2018, there was additional capacity for 1 million tpy online across the two plants.

In mid-December, the new plant was running with three of five lines fully operational. The fourth line has since achieved the same status, and the fifth line is now being ramped up.

But the delays to the entry of these new Turkish soda ash volumes allowed the market to grow in line with the new supply.

"My sense is that the ramp-up has been a little slower than was expected, or was indicated to the market, and that - coupled with the growth in demand - [has allowed] the new supply to be absorbed," Ciner Resources chief financial officer Scott Humphrey told Industrial Minerals.

"About this time last year, all of the [new] Kazan supply [of 2.5 million tpy] was due for the end of 2017, which hasn’t happened," Rob Fennell, global marketing and business development manager at American Natural Soda Ash Co (Ansac), said. "We at Ansac have taken the stance that the market wasn’t going to be as loose as some people believed, and it seems we have been [more accurate] in our predictions."

Chinese unpredictability

"[Demand for soda ash in] China grew much faster than anyone anticipated. Chinese soda ash demand for 2017 was predicted to be flat or [to go] down. China accounted for 40-45% of world demand, and that grew by 4%, which is significant," Fennell said.

Global demand is expected to show a compound annual growth rate (CAGR) of 2.1% per year for the next 10 years, although "it might be a little more robust this year," according to Humphrey.

With the soda ash market currently consuming 60 million tpy, and with a growth rate equivalent to 1.2 million tpy, the new capacity from Kazan will be wholly taken up within two years.

The level of Chinese production against consumption has essentially been a determining factor in the softening of price decreases, because of the surprising growth in demand.

Although Fennell estimated growth at 4%, against forecast flat or negative growth, Ciner Resources chief executive officer Kirk Milling said that demand in China increased by 7% in 2017.

Fennell’s more conservative estimate of 4% growth would mean that demand for an additional 500,000 tonnes of soda ash in China was required in 2017 compared with the previous year.

"Robust demand in the Chinese domestic market drove down their exports by 26% through November, compared with the previous year," Milling said in March during a conference call for Ciner’s 2017 financial results.

This coincides with the view from Eti Soda that Chinese production "dropped off by 10%" earlier this year due to the environmental controls.

Although the exact amount of production that has been affected is unclear, there has been less Chinese product in the international market.

For the 12 months ending March 2018, the country’s exports were down by almost 300,000 tonnes year-on-year, according to data from Chinese Customs. This alone would allow 10% of Turkey’s additional 3 million tpy to be absorbed by the Chinese market.

US shipping to EU

There was another factor which helped the Turkish plants to gain market share in Europe and to deliver product for 2018, and which inadvertently offset the effects the market could have felt from the predicted supply glut.

"We helped Eti Soda to seed new customers in the first part of last year, while it expanded the Beypazari site and delivered the greenfield opening in Kazan," Ciner Reources' Humphrey said.

"If you look purely at export data, you can see how a lot of product moved into Europe in 2017, more than in previous years, and in 2016 there was barely one tonne of exports," Ansac’s Fennell said.

Ansac performs international marketing operations for Ciner Group, along with Genesis Alkali and Tata Chemicals, which also produce natural soda ash at Green River in the US state of Wyoming.

Data from the US Geological Survey shows that the US exported 6.99 million tonnes of soda ash in 2017, and that four European countries received soda ash produced in the US.

The total of 471,900 tonnes that went to Europe was split between Belgium, which took 137,000 tonnes; Spain, 146,000 tonnes; the UK, 132,000 tonnes; and The Netherlands, 56,900 tonnes.

This was confirmed by one market participant, who said that "there was one boat [from the US to Europe] very early in the first quarter of 2018 which might have had as much as 25,000 tonnes on board." Corresponding data from the USGS showed that the UK received 13,600 tonnes in January. No other European country recorded receiving any exports, according to published data.

The effects on prices that could have come from China’s growth in demand, robust growth in Europe and the delayed entrance of additional Turkish product to the market was cushioned by Ciner Group’s exports to Europe.

These factors combined to allow only nominal price decreases and the rebounds that have been seen in the market.

New focus on China

Broadly speaking, market participants are happy with the market as it now stands because it is stable and price volatility has been avoided. The question now is where to find the additional tonnes needed to meet demand growth into 2019 and beyond.

There are debottlenecking processes than can be applied at Ciner’s plants in the US, which will release another 300,000 tonnes over the next three years. There is also "fundamentally scope" for European producers to find another "100,000-200,000 tonnes" through similar exercises, according to one Europe-based producer.

Genesis Alkali could also bring an additional 500,000-700,000 tpy online by expanding one of its two plants in Wyoming, although this would require investment.

Finding additional capacity would be the best solution for producers, given the current growth rates and the upward direction of price movements.

Once the fifth production line at Eti Soda is fully ramped up, the focus will be on China, because what happens there will be the major variable influencing the demand-supply balance, bringing an end to the Eti Soda roadshow.

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