Soda Ash: Accelerated Culling of Capacity, Improved Supply/Demand Pattern

By Liu Juan, He Jiayi, Wang Wei, China Bond Rating Co., Ltd.

The main processes for soda ash production in China are the ammonia-soda process, the combined-soda process and the natural soda process, respectively 52%, 42% and 6% of the nation’s capacity. The average individual scale of ammonia-soda units is quite big, and the number of producers is small. The individual scale of combined-soda units is quite small, and the number of producers is big. Due to China’s lack of natural soda resources, producers using the natural soda process are distributed mainly in Henan and Inner Mongolia; the total capacity is around 1.80 million t/a, and individual units are small.

Demand arises from the real estate market

The soda ash sector in China started rapid development in 2000. The export and the import volumes were quite stable during 2006-2016, accounting for 8.68% of the output and 0.27% of the domestic supply, respectively. Demand for soda ash is determined mainly by the domestic market. See Figure 1 for details.

The CAGR of soda ash apparent consumption was 10.09% during 2000-2011. With impacts from the prosperity downturn in the real estate market after 2011, the growth of the soda ash apparent consumption slowed down. The CAGR was 1.83% during 2012-2016 and apparent consumption was maintained at 21.0-24.0 million tons. See Figure 2 for details.
Most of the soda ash in China is used in industry, while some is for civil use. Major application sectors of soda ash in industry include glass, inorganic salts, synthetic detergents, alumina, dyeing/printing and others. Glass manufacture consumes over 50% of the total. Ups and downs in glass output, therefore, determine the demand for soda ash.

Glass can be classified by application into flat glass, daily-use glass, technical glass and optical glass. Flat glass is around 80% of the total output. Flat glass is mainly used in real estate (70%) and automobiles (20%) or exported (10%). The periodic fluctuation of the real estate market is the major influence on demand for flat glass. Due to a YoY reduction in the growth of housing floor space under construction in the first half of 2017 and the effects of stringent policies for real estate sales, growth of glass output in China in 2017 can hardly be expected to maintain the level of 5.80% seen in 2016. The overall output will however be stable and the demand for soda ash in glass manufacturing will also be stable.
Synthetic detergents, alumina and dyeing/printing are also important downstream sectors of soda ash. Their apparent consumption accounts respectively for around 5%, around 5% and around 10% of the total.
Soda ash can be used as important surfactant for synthetic detergents and is therefore a major raw material for synthetic detergents. The growth of synthetic detergent output has promoted growth of soda ash demand. The output of synthetic detergents has increased steadily since 2013. The overall output is in a range of 12.0-13.0 million tons a year with small changes, and consumption of soda ash hovers around 1.3 million tons. The consumption of synthetic detergents as daily consumables is quite stable. The output of synthetic detergents will very likely be stable in 2017.
Soda ash is one of the auxiliary materials for producing alumina from bauxite. The output of alumina has increased steadily in recent years. Ninety seven percent of alumina is used in making electrolytic aluminum. It is expected that the demand of soda ash in making alumina will increase at a growing rate or at least maintain sustained growth.
In dyeing/printing soda ash is mainly used as a water softener and scouring agent. Owing to the overall stable output in the dyeing/printing sector, demand for soda ash will remain stable.

Gradual elimination of high-cost, high-pollution capacity

With rapid development of the macro economy and especially rapid expansion of real estate as a major downstream sector, the soda ash sector in China once experienced a period of rapid development. With a prosperity downturn in the real estate market in 2010, the growth of soda ash output and soda ash capacity slowed down. Soda ash capacity peaked at 31.5978 million t/a at the end of 2014, but utilization was only 79.57%, a historic low. Fierce competition led to a long period of slack prices. Some capacities of the combined-soda process with high cost and some capacities of the ammonia-soda process with serious pollution were gradually eliminated. The total eliminated capacity in the sector during 2015-2016 was 1.9 million t/a. Capacity at the end of 2016 was down to 29.7 million t/a, a reduction of close to 6%.
At a time of low soda ash price, the prices of byproducts in the combined-soda process are essential to the profitability. The price of byproduct ammonium chloride has been low since 2014. Enterprises using the combined-soda process were therefore bogged down, and some units with high operating cost were gradually eliminated. According to statistics, the eliminated capacity of the combined-soda process was around 1.9 million t/a during 2015-2016. The production of soda ash through the ammonia-soda process generates great quantities of high-polluting waste residues and waste liquids. The eliminated capacity of some enterprises using the ammonia-soda process with high pollution was around 1.0 million t/a. The total eliminated capacity in the soda ash sector is more than 2.9 million t/a, and the new renovated capacity is around 1.0 million t/a. Figure 3 shows the trend of soda ash capacity in recent years.

By the end of 2016, the only soda ash capacity under construction was 1.0 million t/a, employing the ammonia-soda process, developed by Jiangxi Jinghao Salt Chemical Co., Ltd. The unit is to start production at the beginning of 2018. With stringent requirements on environmental protection and high approval thresholds for developing new capacity, new units will be limited for a considerable period of time, and no new capacity will be put on stream in 2017.

High degree of industrial concentration, big difference in regional advantages

China has around 40 soda ash producers today, with an average capacity of 700 kt/a. Twelve producers each have a capacity of over 1.0 million t/a, and around 16 producers have a capacity of 200 kt/a-1.0 million t/a. The combined capacity of top five producers is 11.7 million t/a, accounting for 39.39% of the national total. The combined capacity of top 10 producers is 17.7 million t/a, accounting for 59.60%. Obviously, industrial concentration is quite high. See Table 1 for details.
Overall, the supply/demand pattern of the soda ash sector in China is better today. Enterprises with advantages in scale and cost have greater ability to withstand risk, and their operating risk is relatively low.        

Table 1    Major soda ash producers in China

Producer    Production process    Location    Capacity at the end of 2016 (kt/a)
Tangshan Sanyou Chemical Industries Co., Ltd.    Ammonia-soda process    Hebei    3 400
Shandong Haihua Group Co., Ltd.    Ammonia-soda process    Shandong    3 000
Hubei Shuanghuan Science and Technology Stock Co., Ltd.    Combined-soda process    Hubei    1 800
Yuanxing Energy Co., Ltd.    Natural soda process    Henan    1 800
Henan Jinshan Chemical Co., Ltd.    Combined-soda process    Henan    1 700
Qinghai Alkali Industry Co., Ltd.    Ammonia-soda process    Qinghai    1 200
Qinghai Wucai Mining Ltd.    Ammonia-soda process    Qinghai    1 100
Lianyungang Soda Ash Co., Ltd.    Ammonia-soda process    Jiangsu    1 200
Qinghai Salt Lake Industrial Co., Ltd.    Ammonia-soda process    Qinghai    1 200
Sichuan Hebang Industrial Group Co., Ltd.    Combined-soda process    Sichuan    1 200
Shandong Haitian Biochemical Co., Ltd.    Ammonia-soda process    Shandong    1 100
Shihlien Chemical Industrial Jiangsu Co., Ltd.     Combined-soda process    Jiangsu    1 000
Total capacity in above producers            19 700
Total capacity in the soda ash sector            29 700