Soda ash industry fights recession, Chinese rivals

July 27, 2009 5:27:10 AM PDT
Beneath the arid sagebrush flats of southwest Wyoming, miners work around the clock to grind out millions of tons of trona rock that's hoisted to the surface and processed into a key ingredient for everything from baking soda and detergent, to glass and paper. Four of the United States' five soda ash producers are located above the Wyoming's vast trona reserves, which were formed by an evaporating lake 50 million years ago. Soda ash, or sodium carbonate, has been an anchor of the region since the 1940s, but these days, the industry is facing a confluence of difficult challenges.

The economic recession, including weak demand for glass in the auto and construction sectors, contributed to a 24 percent drop in U.S. soda ash production between the last three months of 2008 and the first quarter of this year, according to the U.S. Geological Survey.

On top of that, American producers say their competitors in China have flooded the international market with help from a Chinese government export incentive. Chinese soda ash exports grew 40 percent in the first three months of 2009 versus the same period last year, according to industry figures.

"They're exporting quite a bit more, and what they're doing in the process is lowering the sales price on the export market, which then makes it very difficult for the United States to compete," said Dennis Kostick, a senior minerals commodities specialist with the USGS.

The four soda ash producers in Wyoming's Green River Basin - FMC Corp., General Chemical, OCI Chemical Corp. and Solvay Chemicals - account for 92 percent of the U.S. industry. Searles Valley Minerals in California is the nation's only other producer.

Wyoming's soda ash companies employ roughly 2,400 people in the Green River Basin, most of whom live in Green River, Rock Springs or the towns of the Bridger Valley. With wages starting above $25 per hour, jobs in the industry are considered good, steady employment.

In the mines, 1,600 feet underground, employees work in noisy, dimly lit conditions amid clouds of musky trona dust. On the surface, plant workers operate the heated, noisy machines that process the yellow trona into powdery soda ash.

Monte Morlock, president of the United Steelworkers Local 13214 at FMC's Green River facility, said production has slowed, but there haven't been any layoffs at FMC and he hasn't heard about any at the area's other plants.

"The soda ash plants out here play a very important role in this community," Morlock said. "It's the type of job that you can raise a family and you can stay in the area. You don't have to be gone for days on end."

The United States produced a record 11.3 million metric tons of soda ash in 2008 and exported about 47.6 percent of that, according to the USGS.

"The U.S. had really been sold out (of soda ash) for five years up through 2008," said Bill Breunig, director of sales and marketing for Philadelphia-based FMC. "Both the U.S. and the export business really began to slow up in the December time frame and into the first quarter. Basically, as things atrophied, the Chinese were very aggressive on gearing up exports."

Breunig said after a slowdown in the first half of 2009, the industry expects business to pick up and operate at about 95 percent of capacity for the year.

The latest figures available from the USGS show domestic soda ash production in May was 780,000 metric tons, down almost 27 percent from 987,000 metric tons in May 2008. April's production of figure of 664,000 metric tons was the lowest monthly production figure since at least 1994.

Meanwhile, trona production in Wyoming for the January-May period was down more than 13 percent from the previous year, according to the USGS.

As soda ash producers wait for domestic and global demand to pick up, they're lobbying for the federal government's help in fighting the Chinese government's new export incentive.

China overtook the United States as the world's top soda ash producer in 2003. The Chinese currently produce about 18 million metric tons of soda ash per year, the USGS' Kostick said.

In April, the Chinese government introduced a 9 percent rebate on its 17 percent value-added tax on soda ash exports. American producers say the action gave Chinese producers an unfair advantage in the global marketplace and drove down prices for American exports.

"So during this period of plummeting demand, including a 14 percent drop of demand in China in the first quarter of 2009, here you have the Chinese essentially trying to export their way out of a recession and keep jobs in China by increasing exports," said John McDermid, president of IBC Inc., a Washington, D.C., company that consults for soda ash distributor American Natural Soda Ash Corp.

Wyoming's congressional delegation recently sent letters to U.S. Trade Representative Ron Kirk and Secretary of State Hillary Rodham Clinton trying to influence the Obama administration's trade discussions with the Chinese.

McDermid said he hopes the Chinese export policy will be part of discussions of the U.S.-China Strategic and Economic Dialogue taking place Monday and Tuesday in Washington. The industry will also push for inclusion in discussions of the U.S.-China Joint Commission on Commerce and Trade, he said.

"We basically see ourselves as a case study," he said. "This is real big picture stuff."

Meanwhile, the American Natural Soda Ash Corp. is working to catch up with Chinese exporters, said Breunig, who sits on the ANSAC board along with his position with FMC.

He said the Wyoming producers intend to use their cost position to pick up more customers. Making soda ash from trona is cheaper than synthetic methods, which account for most of China's production, according to the industry.

"As the lowest-cost producer in the world, we should be operating at the best operating rates," Breunig said. "That's the whole strategic thrust of this type of businesses is to get the low-cost position, so we just need to execute on that. That's what's going on right now."

Morlock, the local Steelworkers president, works as a maintenance mechanic in his 34th year at FMC. He said workers are concerned the recent slowdown could affect their jobs.

"I'm being optimistic and I'm hoping this economy starts picking up because I sure as heck don't want to see anyone face a layoff or anything like that," Morlock said.

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