Soda Ash Players Place Hopes on 2012    

In the first half of 2010, China's soda ash industry was faced with essentially the same difficult situation as in the 2008-2009 financial crisis period. Most of China's soda ash enterprises suffered losses. Only a few could keep a meager profit. The larger the enterprise, the more money it lost. However, the reasons for such difficulties had changed. In the financial crisis period, the situation of China's soda ash market was that the output of soda ash grew steadily but the demand for it shrank rapidly. The current situation is that the demand for soda ash is gradually rising but the output is growing more quickly. The two different market situations led to the same result - that is, serious oversupply and a decline of soda ash prices. As a result, most soda ash enterprises have fallen into plight, according to an expert of the China Soda Ash Industry Association.
   Reportedly, China's total soda ash capacity will increase by 2.3 million t/a in 2010, to 26.4 million t/a. Domestic consumption, coupled with exports, will be up to 20 million tons, leaving 6.4 million t/a of capacity idle. Compared to the rapid growth of soda ash capacity, the demand for soda ash has kept basically steady and even declined gradually. As new soda ash plants will come into production in the next few years, the overcapacity of China's soda ash industry will become more severe.
   In the first half of this year, soda ash prices rebounded slightly. But this cannot allow this industry to be upbeat about its market prospects in 2010 because the brisk soda ash market in the first quarter was a special case and does not represent an all-year market trend. As soda ash prices rose, the operating rate of soda ash plants grew from 85% in 2009 to about 90% in June 2010. This will directly affect the soda ash market in the second half of this year. In the second quarter, the operating rate of China's soda ash industry increased by only 5%, but the soda ash price fell by 20%.
   Although China's export of soda ash hit a record high in 2009, because of the fierce competition among domestic producers, the export price declined month by month. In 2010, even the low export price of 2009 will be possible. Due to the large volume of Chinese soda ash exported to India in 2009 that country has begun to restrict soda ash imports from China. Producers in the United States have lowered their soda ash prices in Asian and South American markets to compete with Chinese producers. Solvay S.A. has also joined the competition for the Asian soda ash markets. All these factors will cause China's soda ash exports to decrease by about 300 000 tons this year to around 2 million tons. In 1H, China exported 808 thousand tons, compared with the 1.28 million tons exported in 1H 2009.
   The domestic demand for soda ash grew a little, and the export of soda ash is blocked by many external factors. However, it is impossible that China's new soda ash projects will be suddenly stopped in the short term. So China's soda ash industry will be in plight for a long time. Although the current market conditions have changed dramatically since many new soda ash projects began construction, because most of the new projects are already under construction, their construction cannot be stopped now. The year of 2012 will be a watershed. Until 2012, China's soda ash capacity will continue to grow rapidly.
   The entry threshold for the soda ash sector, issued on May 1st this year, plays an important role in curbing the rapid growth of new soda ash capacity in China. Now, some soda ash projects for new and expanded units have been rejected because they fail to meet this threshold.
   In addition, the current downturn of the soda ash market will make newcomers more sober and cautious about investing in new soda ash projects. When newcomers build new soda ash projects, they think that these projects can bring to them advantages in production scale and costs and thus they can become more competitive. But they fail to see that because those old soda ash plants are close to the market, they have lower transport costs which can make up for their disadvantages in production scale and cost, so their overall competitiveness is no weaker than new plants. Moreover, compared with the existing plants, the financial, depreciation, transport and marketing costs of the new plants are very high due to their huge investment. These factors are often neglected in the competitiveness analysis of the new projects.