China Increases Regulatory Threshold for Entry into Soda Ash Industry    

On November 27th, 2009, the Ministry of Industry and Information Technology of China (MIIT) publicly released "Entry Requirements of the Soda Ash Industry" (drafted version) to solicit comments from the public until December 18th, 2009.   
   This regulation stipulates that newly-built or expanded soda ash plants must be close to the location of raw materials not in environmentally protected or state security areas that are especially designated by the Chinese government; and existing plants in these regions must be relocated or change production line.    
   In China's central, eastern, northeastern, northern and southwestern regions, MIIT will not approve new or expanded Solvay soda ash projects, but will approve a limited number of new or expanded Hou's process units meeting certain qualifications. In the northwestern region, MIIT will no longer approve new or expanded Hou's process soda ash projects but will approve a limited number of new or expanded Solvay process units meeting certain qualifications.
   As for scale, a Solvay soda ash plant's design capacity should be no less than 1.2 million t/a, of which the design capacity of dense soda ash should account for no less than 80% of the total capacity. A Hou's process soda ash plant's design capacity should be no less than 600 000 t/a, of which dense soda ash should account for no less than 60% of the design capacity, and it must produce dry ammonium chloride rather than wet ammonium chloride. A natural soda ash plant's design capacity should be no less than 400 000 t/a, of which dense soda ash should account for no less than 80% of the capacity.
   The regulation stipulates that for new or expanded Solvay process soda ash projects, the comprehensive energy consumption and the consumption of certain raw materials should not be higher than 400 kilograms of standard coal, 3.5 kilograms of ammonia, and 1 500 kilograms of salt for producing per ton of light soda ash. Existing soda ash manufacturers must meet these requirements before 2015. Otherwise, they will be closed down.  
   China's Inorganic Salt Association says that the production processes for soda ash are very mature, so they essentially have little difference in technical level, and almost all the soda ash producers can meet the requirements for energy conservation and product quality. The greatest impact that the regulation generated is on the industrial layout of the soda ash industry. In the future, small-scale soda ash producers in central and eastern regions will be forced out of the industry due to their lack of energy and resources. Moreover, soda ash does not have a very high added value, so it is not suitable for long-distance sales, especially after the Chinese Ministry of Railways raised the railway transport price on July 1st, 2009. Therefore, soda ash producers that have advantages in both resources and scale in these regions will benefit the most.
   At present, major soda ash producers in China are Hubei Shuanghuan Science and Technology Co., Ltd. (Hubei Shuanghuan), Qingdao Soda Ash Industrial Co., Ltd., Shandong Haihua Group Co., Ltd. and Tangshan Sanyou Chemical Industry Co., Ltd. (Tangshan Sanyou). A manger of Hubei Shuanghuan says that about 20% of China's current soda ash capacity is surplus. He says that the restrictive measures released by MIIT will produce a long-term positive impact on the soda ash industry, but as the soda ash industry is now in a downturn, most existing producers have no plans to increase their capacity, so in the short term, these measures will have little impact on them. A manager of Tangshan Sanyou says that the regulation's requirements for the scale of new or expanded soda ash plants is only slightly below the current average scale, so the threshold for entering the soda ash sector is not high. As for restriction in the design capacity of dense soda ash, there are different voices within the industry. Mr. Li Guangqiang, an employee of Shandong Haihua, says that at present, the company's sales ratio of light soda ash and dense soda ash has reached 4:6 and that the market demand for dense soda ash has begun to exceed that for light soda ash. In his view, this should be a trend but also has put forward higher requirements for enterprises entering this industry to seek out development opportunities. However, some analyzers also point out that in fact, the switch from the production of dense soda ash to the production of light soda ash has no technological barriers but is mainly only a capital investment challenge. The switch will increase the production cost by only several dozen RMB per ton of soda ash, so this regulation will have little influence on the product portfolio. The key factor for adjusting the product portfolio still is the market demand.