Asia soda ash prices poised to rise

20 June 2011 00:00 [Source: ICB]

A seasonal summer pick-up could drive prices higher in an already tight market. Power shortages curtail production

Soda ash prices in Asia are expected to continue rising in the near term, driven by soaring raw material costs, and with demand likely to pick up in the summer months amid decreasing supply.

Recent negotiations for spot supply of soda ash have seen bid/offer levels increase by as much as 20% since mid-April because of higher offers in China resulting from escalating input costs of petroleum coke, salt and energy.

Spot prices were around $300/tonne (€204/tonne) CFR (cost and freight) Asia on May 25, led by the Chinese market, while prices of dense 99% purity bulk soda ash parcels had increased to $280-310/tonne FOB (free on board) China, as assessed by Chemease, an ICIS service in China.

In the domestic Chinese market, dense soda ash prices have risen by around yuan (CNY)200-300/tonne ($30.80-46.20/tonne) to CNY2,050-2,150/tonne DEL (delivered) over the same period, market sources say.

"Our prices are only around $250/tonne CFR India and Southeast Asia at the moment. We may increase the prices next month," said one international producer in late May.

Crude salt prices vary widely across China, with factories located along the coast heard offering at around CNY270-300/tonne ex-mine the week ended May 27 - up by around CNY10/tonne from April. Meanwhile, crude oil on the NYMEX has been hovering at above $100/bbl.

PROFITS SQUEEZED
One tonne of soda ash requires between 1.3 and 1.5 tonnes of salt to produce. With salt prices rising, soda ash producer profit margins are being squeezed. Current margins are estimated at around CNY200-300/tonne ex-tank, according to industry sources.

Discussions for second-quarter and second-half 2011 contracts will kick off in June, with expectations that prices will increase.

"We may also adjust the contract prices as and when there is a need, even though contract prices are usually fixed for the next quarter or the next year," says the same producer.

Meanwhile, the consumption of soda ash from the downstream bottle glass industry is in for a seasonal pick-up during the summer, which starts in June.

"People usually drink more beverages on the go in the heat, thus increasing demand for bottle glass," says an industry source.

Glass accounts for about 50% of the demand for soda ash in China, say market observers. The flat glass market has been slow because of weak construction markets.

Price increases in related products are also contributing to upward pricing pressure in soda ash, say traders. Caustic soda, a product that could be replaced by soda ash, jumped up by around $35/tonne to $530-550/tonne CFR SE Asia the week ended May 25 from the prior week.

CHINA POWER IMPACT
In China, soda ash production is being curtailed by power shortages that are affecting the industrial bases in the eastern and southern regions.

China typically faces a lack of electricity from June to September, when demand is at its peak. But China is grappling with its worst power shortage in years. The China Electricity Council says that a power generation shortfall of about 30GWh will be seen this summer and that the demand gap is likely to expand. This is about twice the shortage that Japan is facing after the March 11 earthquake and tsunami, says one analyst.

Soda ash also is used to make detergents, which account for around 7% of consumption of soda ash production in China. It is also used in the production of chemicals such as sodium silicate, sodium bicarbonate, in pulp and paper manufacturing, water treatment, effluent treatment, metallurgy and pharmaceuticals. Demand from these sectors is steady, say traders.

Major Chinese soda ash producers include Shandong Haihua Group and TangShan SanYou Chemical. They mainly export to Vietnam, the Philippines, South Korea, India and Indonesia.

China's soda ash production stands at around 14m tonne/year. Local producers enjoy a 9% export rebate. Exports have been largely stable at around 140,000-143,000 tonnes/month since March, according to customs' statistics.

Other global producers of soda ash include Belgium's Solvay and US-based FMC.

Other Asian capacities reside in India (3m tonnes/year), Japan (1m tonnes/year), Pakistan (325,000 tonnes/year) and South Korea (400,000 tonne/year), according to ICIS plants and projects.

Projects totaling around 6m tonnes/year are being planned in China, while an additional 1.3m tonnes/year of soda ash production is under study in India to satisfy global demand growth, market observers say.

Major buyers of soda ash include Japan's Asahi Glass and consumer products companies US-based Procter & Gamble and Netherlands-based Unilever.

Additional reporting by Sikee Shi in Shanghai

Author: Hui Heng

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