The changing shape of soda ash production

By Michael Greenfield
Published: Monday, 17 May 2021

Marked by environmental regulation, differing cost bases and key producers restructuring their business models, the soda ash production landscape is taking a new shape.

Lower-carbon natural production, coupled with the European Union’s tax on carbon emissions, is pushing synthetic production of soda ash toward a position where capacity expansions are not currently viable. Marked by environmental regulation, differing cost bases and key producers restructuring their business models, the soda ash production landscape is taking a new shape.

This trio of trends has led to pressure on the long-term sustainability of synthetic soda ash production. Global demand was around 58 million tonnes in 2020 – a 6.2% fall from 61 million tonnes in 2019, according to industry researcher IHS Markit.

This led to slightly lower prices in Europe so far this year. Fastmarkets’ price assessment for soda ash natural and synthetic, dense and light, large contracts, delivered Europe was €165-210 per tonne ($198-252 per tonne) as of April 29. This is down from €175-220 per tonne in November 2020.

With production in China at 23 million tonnes per year, the United States putting out 14 million tpy and around 5 million tpy coming from Turkey – much of the remaining 18 million tpy is produced in Europe. Russia and Botswana also have sites, while India is home to several synthetic producers.

Any pressure that jeopardizes European synthetic soda production would be significant for the global market, notably for glass which cannot substitute for ash – since glass has been identified as a key market for the post-pandemic green recovery.

Regulation pinches on profits
The EU’s Emissions Trading Scheme (ETS) is a real threat to the profitability of synthetic soda ash production in the region, market sources have said. "CO2 prices are going higher and I just can’t see how that is going to be viable in the future. Synthetic plants may have to focus on producing sodium bicarbonate – which commands a premium on price," one distributor said.

The ETS allows industrial companies in Europe to be given a number of credits, or an allowance, for the amount of emissions they can produce each year. For anything they produce above that quota, companies must purchase additional credits. This financially incentivizes the business to invest in order to emit less CO2 and have to purchase fewer credits, preserving profits.

One synthetic producer said this cost is "multi-millions of dollars annually". Given that, most plants in Europe that produce synthetically produce less than 1 million tpy, whereas the two natural plants in Turkey have a nameplate capacity of 2.7 million tpy and 1.8 million tpy.

The six natural plants in the US have a total nameplate capacity of 13.9 million tpy, according the US Geological Survey. That averages 2.31 million tpy per plant.

This pattern of production creates smaller economies of scale for the synthetic producers with regards to energy consumption. More significantly, the natural producers do not have to buy credits because they are situated in Turkey, China or the US – outside of the EU’s remit. Synthetic producers burn coal as part of the production process, while natural producers use solution mining.

ETS credits were at an all-time high at €44.33 per tonne of CO2 on April 16, according to climate thinktank Ember Climate – whose data spans back to 2008. The ETS system works by issuing an annually decreasing number of credits to emission-producing companies with the aim that this will force industries to emit less CO2.

This places a greater value on the remaining credits by tightening the supply, so the price pressure on these credits could well increase. It also potentially increases the demand for them, should companies fail to reduce emissions as the quota is reduced – resulting in more companies that are over the limit, fighting over fewer credits.

There are phases of the ETS and the turn of 2021 marked the start of the fourth phase, which will run through to 2030. This means the total allowance for the volume of carbon emissions was reduced at the start of this year. Overall emissions allowances will decrease by 2.2% each year during this 10-year stretch – compared with 1.74% during phase three.

The new phase has squeezed supply, which explains the spike in the credit cost to the all-time high, a second producer source said.

Energy inputs
Several synthetic plants across Europe have already been retrofitted with environmentally friendly energy sources. Tata Chemicals’ plant in the United Kingdom has been fitted with a system which consumes natural gas and allows the producer to sell energy back to the national grid.

The India-headquartered multinational is in the process of building a carbon capture unit at the UK plant, which will capture emissions from the company’s power and steam generating units and take the CO2 and return it to the manufacturing process. This will cut CO2 emissions by 40,000 tonnes (11%) each year.

Belgian chemicals company Solvay has been particularly active in this area – investing in low-carbon energy sources for plants in Spain, Bulgaria, Germany and France, which, upon completion in 2024, will result in 469,000 fewer tonnes of CO2 emissions annually. At current ETS prices this would save about €20.8 million per year.

These efficiencies add to an energy-efficient gas turbine installation at the Rosignano, Italy plant in 2018. At the time, Solvay did not comment on the level of emissions that would save annually.

The problem for synthetic soda ash production is that once energy sources have been switched over, there will be a point at which emissions cannot easily be reduced any further. The last option then would be to develop the widely used Solvay process itself – the preferred process for synthetic soda production in Europe – in such a way as to be less emission intensive. But this would require adapting the long-established chemical process.

Some soda ash producers are investing in glass production – an important consumer of their output

Company moves
This ETS cost facing synthetic producers has strengthened a pre-existing competitive advantage for natural soda ash producers, who typically have a lower cost base. The large number of recent soda ash capacity expansions has primarily come from the natural side of the market – with natural production typically having a lower cost base of production, which existed when the ETS credits sat at significantly lower numbers than they do today. There is currently no scheme to charge companies for CO2 emissions in the US.

Solution mining trona ore is significantly less energy intensive, although this is offset to an extent by the remote locations where trona is found – Inner Mongolia, inland Turkey and Wyoming, US. These locations often require expensive inland logistics to move this bulk commodity long distances to seaports for it to then be shipped. Synthetic plants can be built nearer customers.

While production expands upstream, the same companies are developing footprints further down the supply chain.

The world’s largest dense-grade producer, Ciner Group, has announced that it is planning to build a glass packaging factory in Wales. This sparks interest because Ciner is also expanding soda ash production – having announced 4 million tonnes of new capacity in the coming years.

Joint-ventures and vertical integration are not uncommon for the market, many soda producers in India have downstream textile manufacturing as part of the business model.

Flat glass producer AGC already has a joint venture in a Wyoming production facility with Solvay.

Turkish soda producer Sisecam is also vertically integrated with a flat-glass production. Sisecam also owns part of the Devnya, Bulgaria site with Solvay, and has co-invested with Ciner to expand Ciner’s Wyoming site.

At the time of the Ciner co-investment announcement, in June 2019, Sisecem’s chief executive officer, Ahmet Kirman, said Sisecem was aiming to increase its position and become part of the world’s top three soda ash producers.

Some soda ash producers are still looking to grow their footprint in the production market, although it could be seen as an industry trend that perhaps this is only possible with downstream integration or similar. In other words, moves already made by others could be seen as a signal that vertical integration is required to support growth in soda ash production.

By contrast, moving the other way, container glass manufacturer O-I sold its 25% stake in a Wyoming soda facility to Tata Chemicals, leaving the soda ash producer the sole owner of that plant from December 2019.

While the human population grows and the uptake of glass products in developing countries ramps up, there will almost undoubtedly be more demand for glass. The post-pandemic economic recovery, widely dubbed the green recovery, will create further demand for glass. Solar panels will be a growth area for the material and was labelled as "immune" to the pandemic by IHS. This trend will bolster the outlook for the soda ash market.

Solvay’s recent move
One of the biggest and most recent moves in the soda ash industry has been Solvay’s "carve out" of its soda ash business unit.

Under the technical carve out, Solvay is taking steps to organize the soda ash and derivatives business unit into a separate and fully controlled legal entity.

The move has widely been seen by the market as a potential first step by Solvay towards selling off its soda ash business unit. This move is interesting because it also follows the investments undertaken by Solvay to reduce emissions across several of its soda ash production facilities.

The company also earlier announced investment in debottlenecking activities to achieve another 500,000 tpy across multiple production facilities – a two-year exercise announced in February 2019.

Solvay told Fastmarkets that all the investment decisions were modelled on a price of €50 per tonne for the ETS credit scheme since the first quarter of 2019. This is relevant given that ETS prices are now reaching an all-time high and closing towards that price level.

No decision had been made yet regarding the future of the soda ash business unit beyond the initial carve out, and all options were open, Solvay chief executive Ilham Kadri said during a full-year results call in February when the "carve out" was announced.

Given its importance in the international soda ash business, market participants will be watching Solvay’s future strategy and that of the carved out business unit with interest.

2030 onward for synthetic
The ETS system will mean that producers focus production expansions on the natural side of the market for the coming years. "Until 2030, expansions are focused on the natural production sites," a second soda ash producer said.

Ciner’s natural soda expansions continue despite the Covid-19-related headwinds on demand, as do Genesis Alkali’s and Solvay’s.

"There is enough trona [natural ore] in Wyoming for one or two centuries. Which is low CO2 content, less energy intensive to produce although Wyoming is remote and there are logistics costs to the coast," the second producer source said. "There is no charge for emissions in the US. Although, I cannot bet that it will stay this way. I am very confident that synthetic soda ash can meet sustainability challenge and decrease CO2 and be suitable for capacity investment from 2030 and onwards," he added.