When will the losses in the soda ash industry come to an end?

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When Will the Losses in the Soda Ash Industry End? Publisher: China Chemical News Publication Date: 2013-04-12 The Soda Ash Industry – Losing Money for a Year on End, What to Do? 　　If we are to ask which sub-sectors of the chemical industry are having a tough time this year, soda ash is one such sector. At the 2013 members’ meeting of the China Soda Ash Industry Association held at the end of March, many company executives expressed their concerns; issues such as overproduction, losses, and production restrictions became the focus of discussion among the attendees, prompting a collective reflection within the industry. 　　Things are very bad this year. “Overall, it’s still impossible to see the bottom of the situation; things are more difficult now than ever before.” ”This is the phrase journalists hear most often when interviewing soda ash companies. 　　According to the theme report prepared by Wang Xiling, president of the China Soda Ash Industry Association, despite the economic downturn in 2012, which led to a significant reduction in the growth rate of production of key products derived from soda ash and caused some ammonia-soda ash manufacturers to cut back production, domestic soda ash production continued to rise sharply, resulting in an oversupply in the market. This led to a continuous decline in the price of soda ash, resulting in huge losses across the entire industry. Statistical data show that in 2012, the domestic production of soda ash totaled 24.01 million tons, representing a year-on-year increase of 7.4%. Among the major production enterprises, 12 ammonia-alkali manufacturers suffered a loss rate of 83.3%, with total losses amounting to 2 billion yuan ； Among the 31 soda ash manufacturers that use the combined alkali process, 54.8% suffered losses, with the total amount of losses reaching nearly 1.2 billion yuan. In the first quarter of this year, losses continued. Due to the decline in ammonium chloride prices, reduced sales, and increasing inventory levels, some caustic soda manufacturers that were profitable last year have now incurred losses ； The losses of ammonia-alkali enterprises are worsening. 　　Wang Xiling’s views have been confirmed by some business leaders, and it is the high inventory levels and low prices that they experience most acutely. 　　Li Fenghua, deputy general manager of Dahuahua Group Co., Ltd., said that due to unstable equipment operation, Dahuahua Group’s soda ash production last year was only a little over 400,000 tons, with capacity utilization at around 70%. Whether it’s for export or domestic sales, the prices are not high. Recently, they have felt that market prices continue to fall, while competition in the market is becoming increasingly fierce. 　　“Right now, we can’t even ship products out; our inventory has become extremely high. Last year, the company’s economic performance was fairly good, but it is now in its most difficult period. ”Zeng Xiaoping, president of Sichuan Hebang Co., Ltd., said. He analyzed that on the one hand, there is an excessive amount of stock in society, and on the other hand, downstream demand has declined compared to before. Especially since the second half of last year, once soda ash from the northwest region arrived, prices in the southwest region dropped sharply. Currently, the ex-factory price of light soda ash is very low, at only 1,150 yuan per ton; that of heavy soda ash is also just 1,250 yuan per ton. 　　“This year’s difficulty is far greater than last year’s; I don’t see any light at the end of the tunnel. I even joked with some colleagues that it’s extremely difficult to sell soda ash; we should switch careers as soon as possible. Currently, the total inventory of soda ash manufacturers in the country exceeds 1 million tons, and whether these companies cease operations or reduce production, this amount will need to be released into the market. ”Zeng Xiaoping felt a bit helpless. 　　A responsible person at Zhongyan Debang Chemical Co., Ltd. said that the company’s profits were fine in the first half of last year, but they started to decline in the second half. In light of this, last year they partnered with China National Salt Industry Corporation to establish a new company, Zhongyan Debang, and built an ammonia synthesis project in the Lianyungang New Area, producing products such as urea and compound fertilizers. They do not produce much soda ash, as this industry is no longer profitable. 　　This year, the market fluctuations of ammonium chloride, a by-product of soda ash, also have a non-negligible impact on enterprises. 　　The soda ash produced by Huai’an Wallrun Chemical Co., Ltd. is primarily used to support its core glass manufacturing business. Zhu Changhong, the company’s deputy general manager, said that this year’s market conditions are tougher than last year; in particular, there is significant pressure regarding ammonium chloride, leading to an unprecedented level of inventory buildup. With production capacity still increasing, he is very uncertain about the future. 　　Tang Shunli, general manager of Henan Jinshan Chemical Co., Ltd., said that the company fared fairly well in January and February this year; the financial reports for March have not yet been released, but the situation is not optimistic. Last year, Allied Chemical made a profit because the price of ammonium chloride was relatively high; however, this year’s situation is different. In previous years, the price of ammonium chloride would change once a day in March and April, but this year its price has dropped instead of rising, putting companies that produce alkali compounds in a difficult situation. “These past two days, my colleagues have been discussing when this crisis will end, but I think it has just begun. ”Tang Shunli said. 　　Li Qingju, deputy director of the Lianyungang Alkali Plant at Sinopec Nanhua Company, said, “Our production last year was 1.027 million tons, and we suffered heavy losses.” In 2013, our planned production volume was 1 million tons. The group company requires us to limit our losses this year to 120 million yuan. However, judging from the situation in the first quarter, it is very difficult to achieve this goal. ” 　　The rise in railway freight rates came as a surprise to some soda ash manufacturers in the western region. 　　After 2013, the situation at Zhongyan Qinghai Kunlun Alkali Industry Co., Ltd. was very poor. Their current inventory is around 180,000 tons, but this figure continues to rise. Yang Shuhong, the deputy general manager of the company, said that when the project was initially approved, the company planned to locate its operations in Qinghai. However, after the project reached full production, it became apparent that there was significant market pressure. Although they have multiple salt and limestone mines, their disadvantages in terms of market competition are also evident, namely the particularly high transportation costs. Especially after the increase in railway freight rates by 0.015 yuan per ton-kilometer this year, transportation costs have become a major bottleneck restricting the further development of the alkali industry in Qinghai region. 　　Blind investment leads to bitter consequences. Wang Xiling analyzed that, amid an overall economic downturn, the soda ash industry faces far greater pressure than other industries. On the trend charts for soda ash production and sales, from the beginning to the end of last year, the two lines remained at a considerable distance from each other. Some new plants and large-scale alkali plants have been unable to reduce their inventories. Under the overall situation where production exceeds demand, price cuts for products are inevitable. “At the membership meeting a year ago, we called on the entire industry to reduce production by 20%. But what about the execution result? Production not only did not decrease, but in October and November of last year it even increased to an average of 2.01 million tons per month. This approach, which disregards the bigger picture and ignores economic laws, has resulted in the entire industry receiving warnings and punishments from the market. ”Wang Xiling said. 　　Why can’t the inventory levels be reduced? The industry generally believes that profit motives led to reckless investment in the soda ash sector. 　　Ding Chaoran, deputy general manager of Jiangsu Jingshen Salt Chemical Co., Ltd., believes that soda ash is one of the most basic chemical raw materials, which means it cannot be an industry with extremely high profits. At the same time, the technical barriers in the soda ash industry are not very high; anyone with enough capital can enter this sector. This means that companies are expected to operate within a normal and reasonable profit range, and a profit margin of 15% is already considered quite good. A few years ago, the soda ash industry experienced huge profits, and there were unreasonable factors at play. It was also the huge profits in previous years that stimulated the desire for investment. Added to this are the irrational decisions made by some managers, who always believe they have strong competitiveness, as well as advantages in terms of resources and funding, and that they can overwhelm others; this has led to the current situation of overcapacity and losses in the industry. 　　Zhou Xuequan, deputy general manager of Tangshan Sanyou Chemical Co., Ltd., also said that in recent years, driven by profits, some upstream and downstream enterprises have entered the soda ash industry one after another. From the downstream perspective, various glass manufacturers, including Zhejiang Glass Group and Shandong Jinjing Technology Co., Ltd., have entered the soda ash industry by launching projects with an annual production capacity of hundreds of thousands or even millions of tons; these projects are now largely operational ； This year, the Taiwan Glass Industry Group Company plans to build a soda ash plant with an annual production capacity of 1 million tons, further exacerbating the overcapacity in this industry. He also believes that an unreasonable layout is another important reason. “Currently, there are several regions in China rich in raw salt resources, such as Jiangsu and Qinghai. Many soda ash plants have been set up there all at once, yet there aren’t enough local customers to sustain them. This is equivalent to predatory exploitation of resources, but it does not yield good results. ”Zhou Xuequan said. 　　Some company executives also said that local governments’ pursuit of performance metrics is an important factor driving the establishment of new projects and expansions. 　　Shi Chunlei, vice president of sales at Qinghai Alkali Industry Co., Ltd., said, “I think it is very necessary to limit production. We have been trying to submit production restriction plans to the provincial authorities, but so far without success.” ” 　　Zhu Changhong also emphasized that **there is a desire to limit production in the soda ash industry, and companies have plans to do so; however, the local authorities want these companies to continue investing heavily in their soda ash projects next year.** Zhou Xuequan believes that local authorities think differently from associations; for example, they have to take into account GDP and the issue of employing workers, which means there is a certain degree of egotism involved. 　　Li Qingju said, “I believe the current situation in the industry is entirely normal; it is both logical and expected. It is the result of ‘collective efforts’ by the entire industry, in line with market principles, and it is also an inevitable outcome of the country’s extensive-style economic development.” As society continues to progress, once China’s urbanization process is complete, the demand for soda ash will decline significantly, leading to even greater overcapacity. Whenever an industry thrives, there will be times when it declines. The entire industry reaped huge profits in 2011, so it’s normal for things to be sluggish now. There’s a line from a movie that says: Whatever you do in life, you will have to pay for it eventually. It is we ourselves who have created so many enterprises. One must swallow the bitter fruits of one’s own actions. ” 　　Survival of the fittest is key. In today’s context, with the difficulties facing the soda ash industry, what effective measures can be taken to change this situation? 　　Wang Xiling believes that for over 60% of soda ash manufacturers, the difficult situation of losses has persisted for more than a year. With supply exceeding demand in the market and fierce price competition, reducing production is a wise choice when companies are suffering heavy losses. However, production restrictions are only a temporary measure; companies must also adopt new processes, technologies, and equipment in order to reduce energy and raw material consumption as well as costs, thereby promoting their own sustainable development. 　　In response, many soda ash manufacturers said they would strictly control their production rates from their own side in order to comply with the call for production cuts. Some companies have also put forward their own suggestions. 　　Fu Xiquan, general manager of Shandong Haihua Co., Ltd., said that they have proactively reduced the operating rate from 74% in 2012 to 70% at present, with the current monthly production amounting to no more than 175,000 tons. This is mainly due to two considerations: first, in the current market environment, the more produced, the greater the losses, so there is no need to ； Second, commitments need to be fulfilled, and further production cuts may be imposed in the future. 　　Yang Shuhong told reporters that the company intends to respond to the call from industry associations for production restrictions, and is taking several actions in this regard: First, the company has adjusted its production capacity; although it is capable of operating at full capacity, it is not currently doing so ； Secondly, as new enterprises, they actively explore technological upgrades from the perspective of production costs, striving to secure a position in market competition through high-quality products ； Third, the company is planning to set up a dedicated container line, in an attempt to reduce transportation costs by taking advantage of the lower costs associated with containers ； Fourth, actively seek higher-level cooperation with counterparts on the mainland, engaging in comprehensive collaboration both in terms of technology and the market. 　　Ding Chaoran said that for the industry to develop healthily, restricting production and maintaining prices is only one aspect; it is also necessary to eliminate those companies with high production costs and high energy consumption, allowing them to withdraw from the market sooner – this would be beneficial for the companies, the industry, and ** as well. If they are allowed to continue losing money indefinitely, until they become insolvent and unable to dispose of their assets, it is still ** who suffers the losses. Therefore, he believes that for companies suffering heavy losses, the relevant authorities should help them withdraw from the market. **Policies can be introduced to provide financial support to enterprises that should cease operations but face difficulties in doing so ； Peer companies can also offer them some assistance to work together in maintaining a healthy market environment. 　　Ding Chaoran also suggested that **a comprehensive evaluation mechanism should be established. First, a comprehensive assessment of the industry is necessary, including what level of manufacturing costs is considered normal and what price is reasonable for soda ash, in order to prevent excessive profits from leading to reckless investment. Secondly, it is necessary to assess which areas are suitable for the development of the soda ash industry and which are not, in order to implement zoned management and regional approval restrictions. Once again, evaluate the current status of the enterprise. Companies that are predicted not to be profitable in the future **should be advised to withdraw ； Policies should be introduced to encourage the development of enterprises with high standards in technology, management, as well as safety and environmental protection. 　　Many companies also believe that shifting approval powers upward is the key to controlling new production capacity and addressing difficulties. 　　Zhou Xuequan said that whenever a project turns out to be profitable, everyone rushes to get involved in it. The delegation of approval powers has further fueled reckless investment. If the approval authority for the soda ash project is centralized at a higher level, such as through joint approval by the Ministry of Industry and Information Technology and the Ministry of Environmental Protection, with the Soda Ash Industry Association also able to provide input, the situation might improve. 　　Ren Jingyong, general manager of Henan Quanshun Fluid Control Technology Co., Ltd., said that to reduce excess production capacity, implementing production restrictions and conducting investigations into the dumping of soda ash in the United States are appropriate measures, but these actions are only temporary. The industry should consider internal upgrading, by uniting enterprises from the upstream, midstream, and downstream sectors as well as service providers to form alliances. These alliances can help improve the internal structure, enhance competitiveness, reduce operating costs, and thus achieve product upgrades and the survival of the fittest.