Soda ash exports to be subject to immediate surcharge for ship fuel

By Michael Greenfield
Published: Friday, 01 November 2019

US soda ash exporter Ansac has reacted to a directive from the International Maritime Organization by putting a fuel surcharge on shipments of its output, which could have knock-on effects for the cost of soda ash globally.

American Natural Soda Ash Corp (Ansac), a soda ash exporter based in the United States, is implementing a surcharge on shipping fuel which will be put into effect immediately, according to a company statement.

The move is a reaction to an impending regulation from the International Maritime Organization (IMO), a United Nations body, which will push ship operators toward using fuel with lower sulfur content.

While this has not yet affected the price of US-origin soda ash, it could influence the buying strategy of consumers and subsequently exert price pressure in the market.

Southeast Asia is a strong market for US exports, with Malaysia, Indonesia, Thailand, Indonesia, Vietnam, Japan, India and the Republic of Korea all among the top 10 consumers of US-origin natural ash, according to available data from the US Geological Survey covering the period until June this year.

These markets would feel the strongest effect of a per-tonne fuel charge, given the distances between those countries and US ports.

South and Central American countries are also major recipients of US-origin product.

The Platts Singapore 0.5% monthly average index for August was $493 per tonne, which equated to a surcharge of $3.30 per tonne for October shipments, according to Ansac president Chris Douville.

Ansac will export around 4.4 million tonnes of soda ash this year, making it the largest global export of the material, the statement said. Fastmarkets estimates this volume to be about 7% of the global market.

If the surcharge were to stay at its current level and be placed on a full-year’s worth of exports, it would cost Ansac’s customers $14.25 million.

"Normally, we would use different financial instruments to hedge our fuel exposure, but the speculative premiums associated with those hedging instruments that are currently available are far too expensive," Douville told Fastmarkets.

"Although demand has slightly reduced in some markets due to economic conditions and consumers’ confidence, Ansac projects that the fourth quarter shipments will be the largest of any quarter in 2019," he added.

The price for soda ash, natural, dense, large contracts, fob Wyoming, was assessed at $185-225 per tonne on August 29, unchanged month on month since February this year. But Western sellers were bullish about a price increase later this year, with the market getting toward the time for annual contract negotiations.

The IMO regulation, to be enforced from January 1, 2020, was devised to restrict the use of high-sulfur fuel, 3.5% content. From that date, ships may only burn that fuel when on the open seas, and not in or around port areas.

This has placed a premium on low-sulfur fuel, 0.5% content. It has also created backlogs of orders at dockyards with ship owners scrambling to fit 'scrubbers’ which will allow high-sulfur fuel to be burnt at all times by treating the waste fumes.

The Ansac statement did not detail the dollar value of the surcharge, only that the Platts Marine Fuel Bunker 0.5% price surpasses a "certain US dollar threshold per metric ton" and that it will apply to every vessel, effective immediately. The statement was dated September 16.

"The highly speculative premium on forward pricing for 0.5% low sulfur fuel versus today’s 3.5% [fuel], as well as uncertainty as to the actions that shipowners will take both before and after January 1, have significantly limited the plausible fuel-hedging options available in calendar year 2020," Douville said. "Therefore, to ensure shipment reliability, Ansac has no choice but to adopt this fuel surcharge program."