Asia soda ash contracts may fall further in Q2

Asian soda ash contracts for the second quarter this year could drop by another 12% from current levels on the back of weak downstream demand, buyers and sellers said on Monday.

Term material for the months of January through March have been settled at $250-260/tonne (€187.5-195/tonne) CFR (cost and freight) Asia, down by about 26% from deals concluded in December 2008.

“We’re going to re-negotiate our contract in February and will ask for a reduction of $20-30/tonne. Given the poor demand and glut of material, we don’t expect our supplier to put up much of a fight,” said a northeast Asian trader, who purchases material from China, in Mandarin.

Some soda ash makers concurred that downstream end-users had the upper hand in price negotiations for 2009.

“It’s a buyers’ market now. If we don’t do something to accommodate them, we could be very well out of business,” said a source from a major supplier of soda ash to south Asia.

“In the past, we always concluded our contracts on an annual basis but this year, we’ve gone with buyers’ wishes for quarterly term agreements to secure their business,” added the source.

Soda ash contracts in 2008 were pegged at $290-310/tonne CFR Asia for the first half before they were revised upwards to $300-350/tonne CFR Asia on the back of tight supply.

The current global economic downturn eroded demand from downstream glass and detergent sectors from late 2008. Major northeast Asian automobile makers reduced output at their plants, while construction activity across Asia and the Middle East has slowed significantly.

Soda ash is used to make float glass for construction and consumer goods such as glass bottles and detergent.

Major producers of soda ash include Belgium’s Solvay, China’s Shandong Hai Hua and FMC Corporation from the US.

The big buyers of soda ash are Japan’s Asahi Glass, Procter & Gamble and Unilever.

($1 = €0.75)