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At the turn of the year the soda ash market saw a decline in
prices as high stocks in a number of markets had led to downward
pressure. However, despite the usual fluctuations in growth from
year to year, demand in the medium term was expected to steadily
increase. In response, a number of capacity expansions had been
announced, with much of that extra capacity due to come on stream
in the US over the next 2 to 3 years, with further expansions due
to come on stream in 2025.
Since then, the soda ash market, as with the market in many other
commodities, has seen a major impact from the COVID-19 outbreak.
Soda ash is used as a raw material in the production of a number of
basic goods such as architectural and automotive glass, glass
packaging, sodium silicates and soaps and detergents, as well as a
number of other smaller applications. As such, the temporary
closure of large sections of many economies, in a bid to tame the
spread of COVID-19 across the world, has had a significant negative
impact on demand for soda ash. In response, soda ash producers have
been forced to rethink their future plans whilst also adapting to
the current market situation.
The production of flat glass, which in turn is used to make windows
in buildings and automobiles accounted for 29% of the world's total
demand for soda ash in 2019. Historically container glass, or glass
packaging, was the largest end use of soda ash. This changed in the
mid-2000s, as the growth of the Chinese economy, coupled with the
rapid emergence of new cities in China, drove the demand for
architectural glass. The fact that the flat glass sector is so
heavily linked to the construction and automobile sectors means
that it has been particularly badly impacted by the COVID-19
outbreak.
The temporary closure of car plants, has led to a number of flat
glass plants across the world, being put on hold or recycle mode
leading to a significant drop in demand for soda ash. The overall
impact on soda ash demand from these closures is limited by the
fact that only around 10% of flat glass globally goes into
automobile production. It should also be noted however that the
loss in demand for automobiles has had the further impact of
reducing demand for tyres for which sodium silicates is a raw
material, thus further reducing demand for soda ash. Demand growth
for lithium carbonate, which over recent years has been driven by
the growth in the electric vehicle industry has also been impacted
by the slowdown in automobile production. Growth in demand for soda
ash from the lithium sector over the 5 years to 2019 averaged 18%
annually, with much of this growth focused in Argentina and Chile.
Growth in demand for soda ash from the lithium carbonate sector is
now expected to be flat in 2020 as a direct result of the COVID-19
Pandemic.
The construction sector, which accounts for most of the flat glass
demand has so far seen less of an impact from the Pandemic than the
car industry but has nevertheless slowed. The outlook for
construction remains mixed, as the impending economic slowdown is
likely to impact investment in this sector, whilst it remains to be
seen how much of this damage can be avoided through government
stimulus. Meanwhile, the third major sector into which flat glass
production is channeled, and by far the smallest is the solar glass
sector. So far there has been little impact on demand for flat
glass in this sector as a result of lockdowns, but as with other
end use sectors the short-term outlook for solar glass remains
unclear.
Unlike flat glass, demand for container glass, saw an increase in
the immediate aftermath of lockdown announcements, particularly in
Europe and the US, as consumers stockpiled food and beverages
packaged in glass. Demand for soda ash from this sector was also
bolstered by a lack of available cullet, or recycled glass, which
increased demand for virgin raw materials. In the final weeks of Q1
however, it became clear that demand was beginning to slide, as
bars and restaurants were forced to close and tourism ground to a
halt. This was followed by a number of temporary closures of plants
as labour shortages became an issue. Although some demand was
maintained by consumers switching from drinking outside the home to
drinking inside the home, the overall demand for beverages,
particularly alcoholic beverages which are traditionally packaged
in glass, fell. In some parts of the world such as India and South
Africa, this fall in demand was further compounded by the
imposition of stringent bans on alcohol sales. In a recent update
of their business outlook, the world's largest container glass
producer Owens- Illinois stated that they expect to see an overall
decline in global demand for container glass of between
5-10%.
One soda ash end use sector that has perhaps fared better as a
result of the Pandemic is the soaps and detergents sector. As with
container glass, in the initial stages of lockdowns across the
world, consumers stockpiled soaps and detergents. This initial
spike in demand, was followed by a period of higher demand as an
increased focus on hygiene, saw demand for cleaning products rise.
This boosted demand for soda ash, particularly in developing
regions, where the use of powder detergents remains significantly
higher than liquid detergents, as liquid detergents don't use soda
ash as a raw material. There are however some market participants
who think that it is unlikely the increased demand will be upheld
throughout the rest of the year. In regions such as Europe and the
US, some of the increase in soaps and detergents demand from
consumers has been offset by a loss in demand from the hospitality
sector.
Despite some soda ash end use sectors faring better than others,
overall demand for soda ash has seen a dramatic decline globally,
particularly in the second quarter of the year. Although the
situation has improved since the market's lowest points in April
and May, demand for soda ash for the year is likely to be
significantly lower in 2020 than it was in 2021. As a result, soda
ash producers are having to adapt their current operations by
lowering output. The US producer Genesis Alkali put its Trona based
plant, located in Granger Wyoming, on hold initially until
September before extending that period until the end of the year.
Other producers in the US have slowed production as have producers
in Turkey and Europe. The outcome of these moves can already be
seen in export statistics; the US, Turkey and China are the world's
largest exporters of soda ash, but volumes from all three sources
have fallen dramatically over recent months. Exports in the month
of May, from the US, Turkey and China were down 34%, 49% and 29%,
respectively, compared to May 2019.
Meanwhile Chinese producers have, since lockdowns were lifted,
maintained operating rates close to what would be expected in a
normal year, despite the fact that demand in both China's domestic
and export markets remains weak. As a result, huge volumes of
stocks of soda ash have begun to build up, with inventories in
China reaching a peak of 1.76 million mt in late May, before
falling to 1.3 million mt in early July after a number of plants
took maintenances in June. The high stocks have meant that domestic
and export prices in China have fallen significantly in recent
months, with spot export prices hitting a low of $130 per mt FOB
compared to a range of $200 - 225 per mt FOB at the turn of the
year.
With Chinese export prices falling considerably, its likely that
this will put pressure on other exporters to lower prices in the
short-term thereby hurting profitability. This will be an issue for
the US producers who export approximately 60% of the soda ash they
produce with almost half of this volume ending up in Asia
(including the Indian Subcontinent). Regions where contracts for
soda ash are negotiated on an annual basis are also likely to see
downward pressure when these contracts come up for discussion at
the end of the year.
In the longer term, a number of the capacity expansions expected to
come on stream in the US over the next 2 to 3 years are now likely
to be delayed until more favourable market conditions prevail.
These expansions announced in late 2019, included a 600,000 mt
expansion by Solvay, a 1 million mt expansion by Ciner and a
680,000 mt expansion by Genesis Alkali. These expansions were also
due to be followed in 2025 by the opening of 2 new plants in the US
by Ciner, each with a capacity of 2.5 million mt.
What has become obvious over the last 3 months is that demand
for soda ash has been greatly impacted by the COVID-19 Pandemic.
The impact has led to a significant decline in spot prices and is
also likely to impact contract prices for next year in a similar
fashion. Above all, it has forced companies, both buyers and
sellers, to reassess their plans for the future. What is less clear
is how long a recovery in demand will take and how long the soda
ash market will continue to feel the effects of the
Coronavirus.
IHS Markit is hosting its annual
World Soda Ash Conference on the
19thto the
20thof October, followed
by a workshop covering the soda ash industry on the 21st to the
22nd of October. This year's conference will be held online due to
the Coronavirus Pandemic, and will include speeches from some of
the industry's leading companies, as well as IHS Markit
experts.
Posted 20 August 2020 by Matthew Hancock, Principal Analyst, Soda Ash, IHS Markit