Lithium Explorers may Benefit from Rising Soda Ash Price

The potential for long term recovery in the price of soda ash may be a positive sign for lithium exploration companies.  Recently, FMC Corporation (NYSE: FMC) indicating an increase for the price of soda ash. FMC has made a number of announcements of product price increases, with the latest introducing an increase for soda ash of $10 per short tonne to a minimum of $260 per tonne based on bulk shipping rates. It should be noted that soda ash prices are volatile and subject to change on a contract to contract basis.

Global Glass and Detergent Sales Diminished

Global consumption of soda ash diminished by 7.6 percent in 2009 to 44 million tonnes, following growth of 4.2 percent per year between 2000 and 2008.  Consumers in the glass industry, which accounts for 53 percent of total sales, reduced demand during the global economic downturn.  The decline was compounded by lower detergent and chemical output, the other major demand drivers for soda ash.

Long Term Secular Trends

The growth driver for soda ash over the last decade has been emerging markets with rising GDP and urbanization leading to higher per capita use of products manufactured using soda ash.  China was one of only a handful of countries showing a positive increase in soda ash consumption in 2009 and was responsible for 90 percent of world growth between 2000 and 2009.  In industrialized economies, however, demand for soda ash has stabilized due to the maturity of the product cycle and end use consumers of soda ash in the market, as well as substitution and competitive pressures.

Future demand for soda ash, forecast to grow at 3 percent per year over the next five years, will be led by flat glass, detergents and water treatment.  The use of soda ash in mining and metals and flue gas desulphurisation should increase demand.  Emerging economies, particularly China and the wider Southeast Asia region, but also the Middle East, South Asia and South America, will continue to provide the best opportunities for soda ash demand growth on a regional basis.  The outlook for developed economies is more uncertain.

Rationalization Setting In For Soda Ash Producers

Production of soda ash is highly concentrated in China, the USA and Europe, which together accounted for 80 percent of total production in 2009.  A period of acquisitions in the mid- to late- 2000s has consolidated ownership of capacity.  Tata Chemicals (BOM:500770)and Nirma (BOM:500338) of India now have operations in more than one region, and operate both synthetic and natural capacity.  Chinese companies have expanded synthetic capacity rapidly and some are now of a size comparable with natural producers in the USA.  New capacity has also been opened in other countries, most recently in Turkey last year.