Soda Ash Sector Restricted by Resources

With the policy control of the state, the capacity expansion in
the soda ash sector has slowed down, concentration of production
is increased and the impact of the cyclic demand change is
weakened. According to experts, the cost reduction and the firm
price determined by the supply/demand relationship indicate
that the profit-earning ability of the soda ash sector will see
sustained improvement.

Soda ash is a resources-consuming product
Soda ash is the most important and basic raw material for many
industrial goods. It is extensively used in construction
materials and in the chemical and metallurgical sectors. It can
be seen from the downstream demand that the consumption of soda
ash in glass, chemical and light industry sectors accounts for
nearly 70% of the total. Soda ash is an industrial raw material
with a conspicuous cyclic feature. The cyclic change in
downstream demand determines the consumption of soda ash in the
domestic market and also directly affects the price of soda ash
with respect to capacity expansion.
   Raw materials for soda ash mainly include raw salt and coal.
Raw salt and coal are resource commodities and in this sense soda
ash is a resource-consuming product.

The price of soda ash will be firm
Policies in China strictly control the capacity expansion of
soda ash. Due to the increasing pressure of environmental
protection, some small soda ash producers face the fate of being
eliminated. The demand for soda ash in downstream sectors keeps
going up. These factors will result in a firm price for soda ash.
   First of all, the demand for soda ash increases steadily. As
an important industrial basic raw material, soda ash is
extensively used in construction materials, chemicals and in the
non-ferrous metal smelting sector. Downstream sectors using
soda ash have strong correlations with the national economy.
Owing to the rapid development of the national economy in China,
the demand of soda ash will increase stably. Many years of
experience have proved that the growth of global soda ash demand
is around 80% of GDP growth.
   Generally speaking, the growth of infrastructure investment
in the initial period of industrialization is much faster that
the growth of the national economy. China is still in the initial
period of industrialization today and the period still has 5-10
years to go. Downstream sectors of soda ash are concentrated in
infrastructure sectors such as construction materials. For a
considerable period of time in the future, therefore, the growth
of soda ash demand in the domestic market will be higher than
the growth of the national economy. Besides, soda ash is a basic
raw material with a relatively low technical threshold. With the
accelerated integration of the world economy,
internationalization and the increasing scale of production in
the soda ash industry is surely an inevitable future trend in
China.
   The State Council issued the "Interim Provisions Concerning
the Promotion of Industrial Restructuring" at the end of 2005.
It is stipulated in the document that ammonia-soda process soda
ash units with a capacity of less than 1.0 million t/a and
combination soda process soda ash units with a capacity of less
than 300 thousand t/a are subject to development restrictions.
The National Development and Reform Commission issued the
"Circular for Strengthening Management and Promoting the Sound
Development in the Soda Ash Industry "at the beginning of 2006.
Relevant government departments are requested to exercise
strict control on the capacity expansion of soda ash. Due to the
increasing pressure on environmental protection, the production
cost in some soda ash producers has also been increased. The
relocation and renovation of soda ash units in the next two years
will also lead to a slowdown of the soda ash output.

Export of soda ash increases steadily
China's import of soda ash has been gradually reduced. It was
only 71 thousand tons in 2005, a drastic drop of 64% from 2004.
By contrast exports have constantly increased, reaching 1.775
million tons in 2005, an increase of 24.1% over 2004.

The production cost of soda ash comes down
Raw salt is the major raw material for soda ash production.
Producing one ton of soda ash consumes around 1.5 tons of raw
salt in the ammonia-soda process and around 1.2 tons of raw salt
in the combination soda process. The other cost is mostly the
consumption of energies including steam (around 3 tons of steam
per ton of soda ash) and electric power (around 90 kWh of power
per ton of soda ash). The raw salt cost is a high proportion of
the total cost. The price of raw salt has the greatest impact
on the production cost of soda ash.
   After a supply deficit for two consecutive years in 2003 and
2004, the domestic raw salt market achieved supply/demand
balance in 2005. The ex-factory price of raw salt has dropped
from around RMB400 per ton in the second half of 2004 and at the
beginning of 2005 to less than RMB200 per ton today. Judging from
the present supply/demand relationship, the price of raw salt
will hopefully remain low in the next two years.
   Besides, the basic balance in the supply and demand of power
will lead to a slowdown in the growth of demand for coal and the
price of coal will be stable in future. The cost of another
important energy source for soda ash production will hopefully
be stable.