Market outlook: Solvay battles for soda ash

07 March 2014 10:51 Source:ICIS Chemical Business

With margins under pressure in its European heartland, the Belgian company is launching a major improvement plan, as well as creating a new global business unit structure

The soda ash market, particularly in Europe, is under severe pressure with overcapacity and competition from imports leading to capacity closure announcements from market leaders such as Belgium’s Solvay as well as Tata Chemicals.


 Expansion plans underway for soda ash at Green River, Wyoming, US

The US is cost-advantaged because it processes natural soda ash from minerals, as opposed to a chemical process. It costs US producers about half that of producers in other markets which use the chemical process pioneered by Solvay in 1861. US producers are scrambling to capitalise on that cost advantage by expanding production and increasing export initiatives.

Penrice closed a 340,000 tonne/year plant in Adelaide, Australia, in July 2013 and Tata Chemicals has said it will close a 500,000 tonne/year facility in Winnington, UK, during the first quarter of 2014.

Despite the pressure being felt in its European operations, Solvay remains committed to the product – which goes back to its historical roots – and has a plan in place to improve profitability and boost production of lower-cost soda ash in North America.

In 2013 Solvay decided to move soda ash and hydrogen peroxide from a regional business unit (BU) to a global business unit (GBU) structure; they had previously been together in an “essential chemicals” division.

According to Pascal Juery, member of Solvay’s executive committee: “Last year we recognised the need to return to a global structure. Soda ash and peroxide have different markets, different success factors and different strategies. So we split the essential chemicals BU into two GBUs, starting 1 January 2014.”

Juery confirmed that soda ash is part of Solvay’s core business with a plan in place to boost competitiveness, and not a candidate for divestment.

“We believe that soda ash… has the potential to have very good place within the portfolio. Soda ash is a resilient business over the years and gives us significant earnings for the group. Our aim is to improve the competitiveness of the business.”

However soda ash is not an area where acquisitions are likely: “We like where we are today in terms of exposure. We don’t see the point in increasing our exposure in synthetic soda ash.”

Christophe Clemente, president of soda ash and derivatives GBU, explains that the growth plan for soda ash has three elements. “The first part of the plan was to increase the competitiveness of synthetic soda ash and in 2013 we announced a €100m cost-improvement plan for the end of 2015, to take effect in the full year 2016.”

One element – shutting down the 200,000 tonne/year Povoa, Portugal plant – was on track to close at the end of January 2014.

The European market will have more overcapacity to deal with in 2017 when what is ­expected to be the world’s largest soda ash ­facility comes on stream in Turkey. Owned by Ciner, the 2.5m tonne/year facility at Kazan will be based on the natural production process.

This is likely to result in more restructuring among less competitive assets. Solvay estimates that the new plant’s cash cost will be at the same level as best-in-class European synthetic assets. It classes its own European assets to be both first and second tier.

Clemente said: “So, based on the competitiveness of the different sectors, we will see at that time [if Solvay will participate in further capacity rationalisation].”

At its Rosignano, Italy, site the company has said it will adapt production capacity to market needs. “We are very confident that we will meet the €100m plan with 60% variable and 40% fixed costs in the savings,” added Clemente.

The second lever of Solvay’s soda ash strategy is to grow the natural soda ash business in North America. The strategy aims to gradually expanding its US production capacity by about 12%.

On 3 February, Solvay announced it will expand its US production by 150,000 tonnes/year by early 2015 to meet growing demand for its export markets. Solvay’s plant in the Green River basin of southwestern Wyoming has a nameplate capacity of 2.54m tonnes/year. This announced production increase would amount to about a 6% increase, according to the ICIS Plants and Projects database.

The third arm of the growth strategy is the expansion of the bicarbonate business ­globally. Solvay has a 100,000 tonne/year project in Thailand, which was approved in 2013 with completion scheduled for 2015. Clemente said the €20m project is in detailed engineering now.

Asked to comment on current market conditions for soda ash, Clemente said that in Europe, the difference between capacity and demand is shrinking, so it is becoming more balanced.

Latin American, Middle East, Africa and southeast Asian markets are growing and balanced, he said, and profitability is coming in line with normal expectations. There is slow growth in North America.

“In the Chinese market, you’ve seen over the past months that pricing points are moving up strongly and that was needed in that region.”

Solvay’s current forecast is for flat demand for 2014 in soda ash, but Clemente believes it will be better than that. “This is based on some customer feedback. I’m not expecting a breakthrough in demand but it probably will be better than flat.”

A lot of energy is required for artificial soda ash production. Europe’s energy prices are much higher than other regions, but Solvay, said Clemente, relies heavily on coal to produce steam for its requirements. This a more globally priced commodity.

Hydrogen peroxide is the other product from the former essential chemicals division to be given its own GBU. Georg Crauser, president of the Peroxides GBU, says emerging markets differ from region to region, with pulp and paper, mining chemicals and environmental applications being major end-uses.

“We have a large presence in South America and we believe we’ll continue to grow as demand is increasing quite fast there. Here pulp and paper is one of the most interesting markets.”

In Asia there are several large pockets of growth that Solvay is exploring as it has a has a much more diversified market.

A major growth driver is the construction of plants to serve the hydrogen peroxide to propylene oxide (HPPO) business.

“We have two plants operating and one under construction in Saudi Arabia through our [joint ventures] with Dow and BASF. We are looking for further growth in this business where we have acquired a very strong leadership position based on our technology first, and on our ability to build cooperation agreements with these major players.”

The 300,000 tonne/year joint venture (JV) plant is being built at Sadara’s chemical complex in Jubail Industrial City II. It will be the first hydrogen peroxide facility there.

Sadara will use output from the plant as a raw material for HPPO, supporting its propylene oxide (PO) derivative units that produce polyols and propylene glycol.

For Solvay, this will be its third JV HPPO plant, following the 230,000 tonne/year plant in Antwerp, Belgium – a JV with Dow Chemical and BASF – and the 330,000 tonne/year plant in Map Ta Phut, Thailand, a JV with Dow.

Crauser said: “The Saudi project – with commissioning mid-2015 – is under construction. I see further growth opportunities here based in North America and Asia. In these regions we’ll see growth in petrochemical production, PUs, PO and therefore HPPO. We will certainly build more of these HPPOs in the future [when the market demands it].”

Solvay is also near commercialisation of a new technology which allow the development of smaller hydrogen peroxide units at lower cost. According to Crauser the company is in the final stages of the developing smaller plants of around 5,000-10,000 tonnes/year, which will be called “MyH2O2”, targeting customers with large consumption like pulp and paper companies. Many of these companies are located far away from production centres for hydrogen peroxide.

“Normally a smaller plant requires much the same investment as a larger plant, making it prohibitively expensive. Our new process should achieve the same economics as a ­normal plant. We are in the last stages of the project and commercialisation will go ahead this year.”

One pilot plant in Brazil has been functioning for over nine months.

Additional reporting by Bill Bowen

By Will Beacham