OUTLOOK '08: Asia soda ash could hit $400/t

31 December 2007 08:45  [Source: ICIS news]

By Hong Chou Hui

SINGAPORE (ICIS news)--Asian soda ash spot prices for 2008 could hit a high of $400/tonne (€272/tonne) Asia by the second quarter on the back of continued strong demand and tight supply, market participants said on Monday.

“The price trend for this year speaks for itself. The supply situation certainly isn’t going to get any better while demand isn’t going to cool off next year,” said a southeast Asian trader.

“Besides, there’s no substitute for soda ash in the market so a new high of $400/tonne CFR [cost and freight] for spot cargoes wouldn’t surprise anyone.”

He added that India alone was expected to experience a 10% increase in consumption, up from 2.68m tonnes this year to more than 2.9m tonnes in 2008.

Even with new capacities starting up in China and the US, the additional soda ash may not make a dent in requirements for next year, said market sources.

Preparations for the Beijing Olympics in 2008 and a building boom in the Middle East, allied with a healthy automotive industry, have increased the demand for dense grade soda ash.

Likewise, a healthy global economy has contributed to the growth of the middle class in India and China which have in turn, triggered a spike for consumer goods made from light grade soda ash such as detergents and shampoo.

In addition, India, which started 2007 as an exporter of soda ash and is now ending the year as an overall importer, is expected to continue bringing in overseas cargoes to alleviate the shortage triggered by monsoon-induced floods in late July.

“India's Tata Chemicals bought [Kenya's] Magadi (Soda) for the purpose of exporting its products to southeast Asia but ended up having to divert the soda ash cargoes into India due to its force majeure so that highlights how critical the supply situation was,” said the trader.

Soda ash values hovered slightly below the $200/tonne CFR Asia mark early 2007 as abundant exports originated from China, India, the US and Europe.

On 1 July, the Chinese government reduced export tax rebates for its chemical products in a move aimed at cutting down the trade deficit with the US and Europe. Soda ash makers in China lost their 13% export tax rebates overnight.

With high freight rates and competitive domestic prices, Chinese soda ash producers therefore opted to reduce their exports to Asia.

Within the same month, India experienced flash floods in the southern state of Gujarat, home to the country’s soda ash majors such as Tata Chemicals and Gujarat Heavy Chemicals Limited (GHCL).

Both companies declared force majeure and have only recently resumed full production.

These events combined to push soda ash spot prices past the $250/tonne mark which resulted in a flood of orders for sellers of European and US soda ash.

Contract prices of soda ash have been concluded at $230-270/tonne CFR Asia recently, up 21-35% year on year.

According to market sources, this was in line with market trends as soda ash contract prices have always lagged behind spot prices by $30/tonne CFR Asia.

On the other hand, another industry source said that the US subprime crisis and the end of preparations for the 2008 Beijing Olympics could result in a cap for soda ash price gains.

“The spot price of soda ash will probably peak at around $350/tonne CFR Asia by the middle of 2008. That’s when the Chinese requirements for soda ash will take a dip and the full effects of the US subprime crisis will become clearer,” said a southeast Asian seller.

The US federal government recently put in place a series of measures to bail out the country’s beleaguered housing and construction industries in light of next year’s US presidential elections to prevent the incoming White House incumbent from facing economic problems at the start of a four-year term.

Soda ash is used to manufacture glass and detergent, and both industries are booming in China and India. Flat glass is used for automobile windscreens and building construction.

Major producers of soda ash include Belgium’s Solvay, China’s Shandong Hai Hua and FMC Corp of the US. Its big buyers include Japan’s Asahi Glass, Procter & Gamble from the US and Unilever.

($1 = €0.68)

By: Hong Chou Hui
+65 6780 4359

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