Profiting from Change – New Industry...

© 2016 IHS. ALL RIGHTS RESERVED. © 2016 IHS. ALL RIGHTS RESERVED.

PROFITING FROM CHANGE – NEW

INDUSTRY DYNAMICS

‘What a caterpillar calls the end, the rest of the world calls a

butterfly’ – Lao Tzu

IHS CHEMICAL

Marguerite Morrin

Senior Director - Chlor-alkali/Soda Ash

+44 20 8276 4762

[email protected]

mailto:[email protected]

© 2016 IHS. ALL RIGHTS RESERVED.

Contents

© 2016 IHS. ALL RIGHTS RESERVED. 2

Profiting From Change – New Industry Dynacs/ September 2016

SUPPLY/DEMAND

What drives demand?

Top Producers

Capacity Changes

DEMAND BY SECTORS

Detergents

Flat Glass

CASH COSTS

TRADE

Trade Patterns

How Trade Impacts Competitiveness

SUMMARY & CONCLUSIONS


What Drives Soda Ash Demand?

3

Profiting From Change – New Industry Dynamics/ September 2016

Chemicals 9%

Flat Glass 27%

Container Glass 21%

Other Glass

5%

STPP & S/D 15%

Metals & Mining

6%

P&P 1%

Others 16%

Total Demand = 57 MMT

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2000 2016 2021

NAM

WEP

CEP

CIS

NEA

MDE

SAM

SEA

ISC

AFR

Per Capita Demand

Kilo

gra

m P

er

Pers

on

World demand

• Growth averaged 3.2%/y since

2000

• Forecast, 2.1% AAGR, 2016-2021

30

50

70

2000 2016 2021

World Demand vs China

MM

T

35MMT

57MMT

63MMT

China Rest of World


Changes in Soda Ash Producers

4


0 2 4 6 8 10

Solvay

FMC Wyoming

General Chemical

Sterlitamak Combine

OCI Enterprises

Brunner Mond

IMC Global

Ciech

Lianyungang Soda

Shandong Haihua

2000

Million Metric Tons

0 2 4 6 8 10

Solvay

Tata

Tronox

Shandong Haihua

NIRMA

Ciech

Sanyou Chemical

Hubei Yuhua Group

Inner Mongolia Berun…

Sisecam (Soda Sanayii)

2016

Million Metric Tons

0 2 4 6 8 10

Solvay

Ciner Group

Tata

Tronox

Shandong Haihua

NIRMA

Ciech

Sanyou Chemical

Hubei Yuhua Group

Sisecam (Soda Sanayii)

2018

Million Metric Tons

Ownership on a shareholder basis


Capacity Changes

5


30

50

70

2000 2016 2021

World Capacity vs China

44 MMT

65 MMT

72 MMT

China Rest of World

Soda Ash Closures outside China

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

-600

-500

-400

-300

-200

-100

0

Closures Per Year Cumulative Total

Mill

ion M

etr

ic T

ons

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

Closures Per Year Cumulative Total

Mill

ion M

etr

ic T

ons

• China has dominated in adding capacity

• Capacity additions, economic problems, volatile

energy prices have combined triggered closures

• 7.0 MMT/Y capacity closed outside China

• 2.4 MMT/Y capacity closed in Europe

• Chinese capacity additions have slowed

• Turkey set for single biggest expansion

MM

T

0

20

40

60

80

2000 2016 2021

Rest of World China

World Capacity vs China

44 MMT

65 MMT

72 MMT


Changes in European Supply and Demand

6


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2016 2021 2000 2016 2021 2000 2016 2021

CEP CIS WEP

Sum of Demand Sum of Capacity

Millio

n M

etr

ic T

on

s

• Demand in both CEP and

CIS has grown but both

regions have surplus

capacity

• CEP is a significant exporter

of soda ash

• Demand in WEP has fallen

since 2000 alongside a fall in

capacity

• WEP is structurally short

of soda ash

• +700kt/y new demand in

Europe since 2000

• While capacity in Europe

has been forced to close,

demand has not

disappeared

West Europe (WEP), Central Europe (CEP),

Commonwealth of Independent States (CIS)


Changes in Other Regions

7

• Growth in Chinese demand

slowing as economy moves to

more sustainable growth

• Significant demand potential

in India

‒ Who will supply this

demand?

‒ Will India copy China and

meet its needs through

local production?

‒ Or will imports supply a

certain portion of Indian

demand?

• US demand has fallen since

2000 and doesn’t look like it

will grow much to 2021

0

2

4

6

8

10

12

14

2000 2016 2021Capacity Demand

Millio

n M

etr

ic T

on

s

0

5

10

15

20

25

30

35

2000 2016 2021 2000 2016 2021

China India

Sum of Capacity Sum of Demand

Millio

n M

etr

ic T

on

s

US Capacity and Demand

China and India Capacity and Demand



DETERGENTS • 12% of World Soda Ash Demand

• Demand is Shrinking in Developed

Markets

‒ WHY?

8



Detergents & Soda Ash

• First of the great roman baths built

about 312 B.C.

• By 200 A.D., the Greek physician,

Galen, recommends soap for both

medicinal and cleansing purposes.

• In 1791 French chemist, Nicholas

Leblanc, patented a process for

making soda ash

• Soda ash was combined with fat to

form soap.

• In 1946, when the first "built"

detergent (containing a surfactant/builder

combination) was introduced in the U.S.

• Phosphate compounds used as builders in

making them suitable for cleaning heavily

soiled laundry.

• Phosphate use has been greatly

reduced in many countries as a

reaction to it’s link to eutrophication

• Current trends show a move towards

liquid detergents



Changes in Detergent Market

10

0%

10%

20%

30%

40%

50%

60%

70%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Laundry Powder Synthetic Detergents %Powder

Millio

n M

T

Share

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1990 2000 2002 2004 2006 2008 2010 2012 2014

Weight of Powder Weight of liquid

Millio

n M

T

China Detergent Market

Japan Detergent Market



Why are Liquid Detergents taking Market Share?

Powder

• Usually cheaper

• Better washing performance

• More stable ingredients, longer shelf life

• Can buy in bulk, less packaging

• Packaged in biodegradable boxes

Liquids

• Better at keeping colours bright

• Lower temperature wash, less energy

• Use less water in wash

• Tend to overdose on liquids

• 75% water, heavier, higher transport cost

• Packaged in plastic

0

5

10

15

PowderLiquid

Liquid Tab

Retail Prices

Asda Tesco Sainsburys

£/Per 40 Washes

0

50

100

150

200

250

Liquids/GelsPowder

Ranking, Powder vs Liquid

Brightness

Dissolve/energy use

Water Use

Packaging

Transport Cost

Price

Shelf Life

Performance


Why Liquid?

12

Less shelf space,

better for

supermarkets

Use less,

More economical to

transport,

Better at cleaning,

Less packaging,

Biodegradable box,

Longer shelf life ,

Command

premium price,

better margins

for detergent

producers

Are powder detergents

in fact kinder to the

environment?

Why Powder?


Wash at lower temperatures Cheaper


FLAT GLASS

13


• The single biggest end use for

soda ash

• Flat Glass has driven world soda

ash demand over last 15 years

• China is the biggest flat glass

producer in the world


China’s Housing Market Story

• After decades of frantic

growth the Chinese

economy is shifting to

what it calls the “new

normal” – sustainable

growth – as set out in

the 13th 5 year plan

• Chinese growth in

housing construction

has slowed

dramatically

• Pressure on growth

coming from a glut of

housing inventory

0

5

10

15

20

25

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Residential Construction % Y/Y change

-000-

Billio

ns o

f 2

010 U

S d

ollars

Pe

rce

nt

Ch

an

ge

Y/Y



Future Chinese Construction

15

What is going to

happen to Chinese

Flat Glass demand?

• The biggest driver of

housing demand is

urbanisation

• Government plans to

increase urban

population by 100

Million by 2020

• Rebuilding Shanty

towns



Has Flat Glass Production Peaked in China?

334

595?

445

2000 2015 2030

Ho

useh

old

s (

Millio

ns)

• 110 million (M) new

households

between 2000 and

2015

• 110-150M new

households by

2030

• Average glass

demand of 26-36

MMT/Y by 2030

– But, glass

production reached

39MMT in 2014


Current Flat Glass Demand: India: 1.9 Million MT China: 37 Million MT

Difference in China/India Demand (accounting for population): ~ 34 Million MT

• Chinese story in terms of

exponential flat glass growth is

over

• But other stories have yet to

begin

• India, South America, other

developing regions also have to

realize their potential

• Also, flat glass is not just for new

buildings

‒ Automobile, solar glass, double

glazing etc

Flat Glass Potential in ROW



Cost Changes

18



Variable Cost Overview

19

0

5

10

15

20

25

30

35

40

45

Eu

ros P

er

Me

tric

To

n

Coke Anthracite

SALT COST COKE/ANTHRACITE COST NATURAL GAS/COAL

0

2

4

6

8

10

12

$/M

M B

Tu

China Coal (FOB Qinhuangdao)US Natural GasWest Europe Natural Gas (Zeebrugge)

-5%

0%

5%

10%

15%

20%

0

10

20

30

40

50

60

Salt Price (Mkt. Av.)

Salt Demand Growth (%)

Pri

ce

, $

/MT

An

nu

al

De

ma

nd

Gro

wth


Salt demand in China increased

by 55MMT/Y by 2015 vs 2000

Cost to make Soda Ash


Solvay Synthetic Costs – Regional Differences

0

50

100

150

200

250

West Europe China

Fixed Costs Salt Limestone

Coke Energy

Soda Ash Cash Cost 2014

© 2016 IHS

US

D p

er

Me

tric

To

n

Source: IHS

0

50

100

150

200

250

West Europe China

Fixed Costs Salt Limestone

Coke Energy

Soda Ash Cash Cost 2016

© 2016 IHS

US

D p

er

Me

tric

To

n

Source: IHS

20



China Cash Costs and Margins

21

-50

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Do

lla

rs P

er

Me

tric

To

n

Ammonium Chloride Credit Solvay Hou, Costs after Credit

Hou:Margin Solvay: Margin

Hou margins

under pressure

Historically, Hou

had better margins

• Hou has

dominated

capacity additions

• Historically, had

better margins

• Hou margins

under pressure

• Poor credit from

NH4Cl

• Outlook remains

better for Solvay

margins



0

50

100

150

200

250

2005 2016 2021

U.S. China - Hou China - Solvay West Europe

Ammonium chloride credit is deducted in Hou cash costs

22

Dolla

rd P

er

Me

tric

To

n


Cash Costs Comparison


TRADE • 25% of soda ash production is shipped

between key regions

• World trade has grown from 8.5 MMT/Y

in 2000 to 14.2 MMT/Y in 2016

‒ A net increase of 5.7 MMT

‒ Growth in global trade has averaged 4%/y

23



Soda Ash Trade 2016

24

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Africa MiddleEast

CEP CIS WEP SAM NAM NEA SEA ISC

Imports Exports Net Exports 2016

IMPORTERS Millio

n M

etr

ic T

on

s

EXPORTERS



Global Trade: Main Players

25

2.20 Million mt

6.39 Million mt

-000-

MT

684

1408

102 350

219

1909

487

NEA SEA ISC MDE AFR SAM WEP

545

956

379

52 173

77 9 6

NEA SEA ISC MDE AFR SAM WEP Other

-000-

MT

3 Million mt

TURKEY

EXPORTERS Profiting From Change – New Industry Dynamics/ September 2016


Transportation & Soda Ash

26

0

1

2

3

4

5

6

7

8

TURKEY BULGARIA UNITED STATES CHINA

Mil

lio

n M

etr

ic T

on

s

• 25% of soda ash

is shipped

between key

regions

• US by far the

biggest exporter

• China is

opportunistic

• Turkey will take a

bigger share of

global trade



Turkey

Eti Soda – Beypazari 1MT/Y Trona based

Expansion: 0.5MT/Y, mid

2017 Trona based

Kazan Soda – Kazan Phase I: 1.5MT/Y, Aug 17 Phase II: 1.0MT/Y, early 18 Trona based

Soda Sanayii – Mersin

1.1MT/Y Solvay based

327 km

255 km

27

Derince Port

In 2015, a longstanding contract

between producers and the rail

companies expired – bringing about the

end of favourable rates

Portland, OR

Port Arthur, TX

Wyoming

U.S.

Distance from Ports Profiting From Change – New Industry Dynamics/ September 2016


Chinese Soda Ash Exporters

43%

57%

Hou

Solvay

Dalian Tianjin

Qingdao

Nanjing

Wuhan Port

Solvay

Hou

Liaoning

Jiangsu

Sichuan Anhui

Shandong

Hebei

Hubei

Company Location Tech. Cap. Exp. Vol. Port Transportation Cost to Port ($/MT)

Haitian BioChem Shandong Solvay 1,100 300 Qingdao Truck 9

Lianyungang Soda Jiangsu Solvay 1,300 324 Nanjing Truck 12

Sanyou Checal Hebei Solvay 2,300 370 Tianjin Truck 7

Shandong Haihua Shandong Solvay 2,850 358 Qingdao Truck 9

Hubei Shuanghuan Hubei Hou 1,100 126 Wuhan Truck 7

Chongqing Yihua Sichuan Hou 1,000 144 Nanjing Barge/Boat 8

Tianjin Bohua Yongli Tianjin Hou 800 65 Tianjin Truck 4

Dahua Checal Liaoning Hou 600 36 Dalian Truck 8

Jiangsu Debang Anhui Hou 450 } 90 Nanjing Truck 12

Jiangsu Debang Jiangsu Hou 300 }

28



Changes in Global Exports

29

0

5

10

15

20

25

30

35

200

0

201

6

202

1

200

0

201

6

202

1

200

0

201

6

202

1

200

0

201

6

20

21

200

0

201

6

202

1

200

0

201

6

202

1

200

0

201

6

202

1

US Turkey ROW CIS China CEP Africa

Exports Capacity less Exports

Profiting From Change – New Industry Dynamics/ September 2016 M

illio

n M

etr

ic T

ons


Major Exporters

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Asia ISC NEA SEA

MDE AFR SAM WEP

CEP CIS NAM ROW

Share of Chinese Exports

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Millio

n M

etr

ic T

on

s

Total Chinese Exports

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Millio

n M

etr

ic T

on

s

Total US Exports

0%

10%

20%

30%

40%

50%

Total Asia % NEA SEASAM WEP NAMROW

Share of US Exports



Major Importers

31

0.0

0.5

1.0

1.5

2.0

2.5Total India Imports

Millio

n M

etr

ic T

on

s

0%

10%

20%

30%

40%

50%

60%

70%

80%

US Kenya CEP China

Share of Indian Imports

0%

10%

20%

30%

40%

50%

60%

70%

Turkey CEP CIS US ROW

Share of EU-15 Imports

0.0

0.5

1.0

1.5

2.0

2.5Total EU-15 Imports

Millio

n M

etr

ic T

on

s



Import Potential

32

0

1

2

3

4

5

2000 2016 2021

Mill

ion

Met

ric

Ton

s

Asian Imports (excl China & ISC)

• South America (SAM)

and Asia, two biggest

import markets

• Capacity in Asia (excl.

China & ISC) is

confined to small plants

in Vietnam and Japan

• Capacity in

Mexico/SAM confined

to 300kt/y plant in

Mexico, 200kt/y plant in

Argentina 0

1

2

3

4

5

2000 2016 2021

SAM Imports Mexico Imports

Milio

n M

etr

ic T

on

s

SAM and Mexico Imports



Comparison of Freight Distances

Freight Distance Miles

China – ISC 3100

Turkey - WEP 1500

Turkey- SAM 4900

US – ISC 9500

China – SEA 1800

China – NEA 500

Turkey - NEA 8300

Turkey – ISC 3900

Turkey – SEA 6100

US – WEP 4800

US – SAM 3800

US – Mexico 500

0 2000 4000 6000 8000 10000

US - Mexico

US - SAM

US - NEA

US - WEP

US - SEA

US - ISC

Turkey - WEP

Turkey - ISC

Turkey - SAM

Turkey - SEA

Turkey - NEA

China - NEA

China - SEA

China - ISC

US – SEA 7400

US – NEA 4610

33



Competition in Europe

34

0

50

100

150

200

250

300

WEP US Turkey

Cash Cost Local freight to port

Deep Sea Freight Import Duty

Storage/Handling

Do

lla

rs P

er

Me

tric

To

n

Domestic Price


0

50

100

150

200

250

300

WEP US Turkey

Soda Ash Cost to Med. 2021 Soda Ash Cost to Med. 2016

0

50

100

150

200

250

300

WEP US Turkey

Cash Cost Local freight to port Deep Sea Freight

Import Duty Storage/Handling

0

50

100

150

200

250

300

WEP US Turkey

Do

llars

Pe

r M

etr

ic T

on


India, Potential Value?

Soda ash plant

INDIA

• Per Capita Consumption just 2.7 kg

• Imports meet 25% of supply

• Market protected by duties

35

0

50

100

150

200

250

300

India US Turkey, Trona China, Hou China, Solvay

Delivered Cost Comparison to India

Cash Costs Local Freight to PortSea Freight Storage/HandlingGujarat to East Coast Duties

Dollars Per Metric Ton


© 2016 IHS. ALL RIGHTS RESERVED. © 2016 IHS. ALL RIGHTS RESERVED.

Conclusions

• Changes will bring opportunities

• But not everybody will profit.

• Rapid growth in Chinese soda ash and CA

production is over. Less pressure on raw materials.

• Flat glass story in China may be over, flat glass

story in other developing markets has not even

begun.

• India, potential to be a butterfly, today is a ‘cocoon’.

Opportunities to profit from this growth story.

• The change in detergents to liquids does not ‘profit’

soda ash. But maybe, an opportunity to influence a

change back to powders!!

• Turkish soda ash expansion will influence a change

in trade patterns, it may trigger capacity to close but

demand will not disappear.

36



Profiting From Change – New Industry Dynacs/ September 2016

‘What a caterpillar calls the end, the rest of the

world calls a butterfly’ Lao Tzu.

Profiting from Change – New Industry...

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