Sustainability’s impact on the global soda ash market

The recent history of the soda ash market has been turbulent, with the market balance and prices across the world's major soda ash producing and consuming regions being buffeted by a number of factors. One factor, which is beginning to have more of an impact on the soda ash market, is sustainability, and it is expected that its impact will only increase in the coming years. The following is a brief overview of the recent events that have shaped the soda ash market, with a particular focus on how sustainability will play an ever greater role in the future.

Market attention in 2017 and 2018 was focused heavily on how new supply from Turkey was going to impact the market. Ciner Group, a Turkish based producer, expanded production at its site in Beypazari, Turkey by 500,000 mt in March 2017. This was followed by the start-up of a new soda ash production facility at Kazan, also in Turkey, with an annual soda ash capacity of 2.5 million mt. Both plants are low-cost Trona based facilities,with most of the new production sold mostly to the export market. The favourable production costs at both plants meant they can supply most of the world's major import markets competitively. This opened up an opportunity for soda ash buyers to push for lower prices for their annual contracts in 2018, which many achieved, as producers feared that an over-supply in the market would develop. To give an idea of the scale of the impact 3 million mt of new capacity would have on the soda ash export market, the total volume of soda ash exported worldwide in 2018 was 16.2 million mt.

However, despite the fears of producers, this oversupply did not materialise in 2018. In fact, the year ended with many market participants reporting that the opposite was true, and that soda ash markets were tight. As a result, prices for 2019 annual contracts in all regions saw a sharp incline, as producers took advantage of a tightening market. So how did the market veer so far from its expected course in 2018?

The answer to this question comes in three parts. Firstly, the new plant at Kazan suffered a number of delays to its start-up, only reaching full capacity in the latter stages of 2018. This had the result of lessening the impact this glut of new supply had on the export market. Secondly China, which makes up approximately 41% of global demand and 44% of global supply, saw net exports fall from 1.4 million mt in 2017 to 1.1 million mt in 2018, due to internal supply issues. China's supply issues were impacted by environmental checks, imposed by the government to improve industrial waste and emissions. This saw soda ash producers in China reduce their operating rates, or in some cases shut down plants, as their facilities were assessed. Demand was also impacted as soda ash end users, particularly flat glass producers, suffered the same fate. This led to large fluctuations in soda ash price and availability, whilst their costs were impacted by checks on producers of raw materials such as coke and coal. This ultimately led to Chinese producers exporting less soda ash.

The third part of the answer, came from the fact that world demand excluding China,which had remained fairly stable in recent decades, saw unprecedented levels of growth reaching 2.9% in 2017 and 2.8% in 2018. One of the driving forces behind this new demand has come from industry's ever growing focus on sustainability.

One soda ash demand sector that has seen a major impact from this focus on sustainability is the container glass sector. Over recent years, there has been a growing public consciousness of the impact that waste plastics are having on the environment. Recycling rates for plastic bottles in most countries remain low, particularly when it comes to recycling plastic bottles into new bottles. This is partly due to the fact, that in many cases, it is difficult to recycle plastic bottles back into food-grade packaging plastic. Much of the plastic used to produce bottles therefore finds its way into landfill or even out of the waste stream altogether and into the wider environment. Glass, on the other hand, is infinitely recyclable, with recycle rates in some parts of Europe reaching close to 100%. The issue however is complicated, as the amount of recycled glass, or cullet, used to make new bottles is often impacted by its availability,which is in turn dependant on the local recycling infrastructure.

Regardless of the practical and environmental implications of moving to using glass packaging over plastic packaging, it remains the case, at least in some markets, that public perception is resulting in growing demand for glass bottles. This is being helped by a growing willingness to take action by governments, such as the UK's move to ban single-use plastics by 2042 and India's pledge to do the same by 2022. Whether this positively impacts soda ash demand or not is also complicated. This is because as glass recycling rates increase, demand for soda ash falls.

The energy sector is also being transformed by a need for greater sustainability. With energy generation remaining one the biggest contributors to global warming, governments and energy providers are looking to renewable energy to take a greater share of the global electricity output. One renewable energy source that has a direct impact on soda ash is solar power. Although solar power made up 2.23% of the worlds electricity generation in 2018, its share is increasing rapidly, with IHS Markit expecting it to almost double to 4.21% by 2023. To do this, glass will be needed to produce photovoltaic panels, increasing the demand for soda ash. Flat glass producers are already moving to meet this new demand, with NSG, one of the world's largest flat glass producers, breaking ground on a new solar glass in the US this year. The plant will be the first new float glass line in the US since 1980, highlighting the impact this sector could have even on mature markets like the US.

Closely linked to the renewable energy sector is the lithium carbonate sector. Lithium carbonate is used to make lithium ion batteries, which are being increasingly utilised as energy storage units for intermittent renewable energy sources such as solar energy. Demand for lithium ion batteries is being driven to an even greater extent by the growth of electric vehicle uptake, particularly in China. As governments look to decarbonise the transportation sector it is expected that electric vehicle demand will continue to grow, driving the demand for batteries and hence lithium carbonate.

Demand from the lithium carbonate sector impacts soda ash, as it is a major raw material in the production of lithium carbonate. Much of the world's production of lithium carbonate is located in a region between Chile and Argentina, so although its overall impact on global demand may be small, its impact on South America's market has been transformative. Demand for this sector in South America has grown at an average annual rate of 12.7% since 2013 and is expected to grow at an average rate of 19.3% over the next 5 years. This will mean that soda ash demand from the lithium carbonate sector will go from making up 6.5% of all of South America's soda ash demand in 2013 to 19.3% by 2023. Lithium carbonate does however compete with lithium hydroxide, which is often favoured as a battery material, and since lithium hydroxide does not use soda ash as a raw material, this may slow soda ash demand growth from this sector in the future.

Energy production that still relies on the burning of fuel to generate electricity is also having an impact on soda ash demand. A number of governments over recent years have looked to implement legislation to reduce the amount sulphur dioxide/ sulphur trioxide (SOx) emissions from industry. Burning fuels, such as coal or in waste for the purposes of energy production, can lead to high SOx emissions, a major cause of acid rain. One way of mitigating these emissions is to use a SOx scrubber unit, which uses a sorbent material to react with SOx emissions in the waste stream to remove them before they enter the atmosphere. One particularly effective sorbent material is sodium bicarbonate. This is produced either by diverting soda ash production into sodium bicarbonate or by the conversion of soda ash. Thanks in major part to its use as a sorbent material, annual growth in demand for soda ash in this sector is expected to average 3.1% over the next 5 years.

Despite the boost to soda ash demand these sustainability driven end uses have provided, there are some less optimistic trends beginning to play out globally that may act as a counter balance and a drag on growth. The global economic outlook is much less positive currently than it was 12 months ago. Since much of the world's soda ash demand is linked to economic growth due to its use as a raw material in architectural glass, and autoglass, slower economic growth is likely to signal slower soda ash demand. Automobile production levels are already beginning to see significant declines in a number of markets and this is leading to a slowdown in autoglass output.

On the supply side there have been a number of soda ash capacity plans announced recently which may also impact future supply-demand dynamics. Ciner has announced that it is to expand its current soda ash operations in Wyoming by 800,000 st in the coming years, before building another 2.5 million mt plant in the region in a JV with Sisecam by 2024. Solvay, the world's largest soda ash producer is to add 500,000 mt of soda ash capacity across its soda ash plants over the next 2 years.

How these structural and cyclical changes to the soda ash market impact the balance of supply and demand over the coming years remains to be seen. But one thing is certain, the impact of sustainability on this market is only going to increase.

By attending the World Soda Ash Conference 2019, you can find out more about how these factors will impact the soda ash market in the coming years.

Posted 07 August 2019 by Matthew Hancock, Principal Analyst, Soda Ash, IHS Markit