Soda ash producers to factor higher costs into contract price negotiations

By Michael Greenfield, Michael Greenfield
Published: Monday, 30 July 2018

Producers of soda ash in Europe have been grappling with higher costs and now hope to pass that on to their consumers to keep their profit margins up.

The majority of contract negotiations for soda ash prices in 2019 will be soon be under way, with producers believing that higher costs will push prices upward while they strive to preserve their profit margins.

The European market for soda ash has been tight so far this year.

"Everyone is sold out and our customers are rushing to secure supplies for 2019," one European producer told Industrial Minerals on Monday July 30.

Some contracts that would typically be finalized around September had already been settled at prices $20-30 per tonne higher than in the previous year, he added.

"Our position for 2019 is that prices will go up substantially," a second Europe-based producer said. "Clearly, the market is tight."

The price for soda ash, European synthetic, dense and light, large contracts, ex-works, was assessed by Industrial Minerals on July 26 at €190-210 ($221-245) per tonne.

The second producer said that while it had not received any formal approaches for contract negotiations, it had heard "through the market" that consumers will be looking to start the annual discussions slightly earlier this year with the intention of avoiding a steep increase in the price.

"Customers wanting to settle contracts early is a sign that they are worried about cost increases," the second producer said.

Stronger coking coal and energy prices, along with higher rates in the EU’s Emissions Trading Scheme (ETS), have squeezed profit margins for the region’s soda ash producers.

The ETS provides a way for companies that operate in the EU to "buy" or "sell" the amount of greenhouse gas pollutants they may emit, if they are over or under their permitted volume.

The price for an ETS allowance trebled to €15 per tonne from €5 per tonne between May 2017 and April this year.

Chinese oversupply

Outside Europe, the Chinese soda ash market is now reported to be in oversupply, with two China-based sellers saying that producers now hold 600,000 tonnes of stock.

The oversupply, coupled with weak demand, pushed down the price for soda ash synthetic, dense and light, fob China, to $260-270 per tonne on July 26.

The latest assessment by Industrial Minerals was flat from the previous week but down from $300-310 per tonne on July 5.

Consumers are now buying enough material to maintain production levels and are not holding any stock themselves, in the belief that prices will continue to fall.

An Indian soda ash producer said that, at current prices, "we are not threatened" by the possibility of Chinese material flooding the Indian market.

But it added that, if the delivered price drops to $265 per tonne, including freight, that could become a problem because Chinese product could then be financially viable for Indian consumers.

Freight costs from China to India add $20-30 per tonne to the assessed fob China price.

The current price for soda ash in India was assessed steady on July 26 at $275-285 per tonne for soda ash, Indian synthetic, dense and light, domestic, ex-works.

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