Sodium bicarb supply strong, tags level with producer costs
Gordon Graff -- Purchasing, 4/6/2006 2:00:00 AM
For purchasers of sodium bicarbonate, supplies are abundant but prices are drifted upward in 2005 in response to producers' rising costs. As a whole, sodium bicarbonate is a fairly staid commodity, with growth typically hovering around 3% a year. But several specialized segments of the business, such as pollution control and blasting media for cleaning industrial surfaces, are seeing above average demand. Other sectors, such as animal nutrition, are showing lackluster growth.
Average prices of sodium bicarbonate, as reported by Purchasing are up about 10% over year-ago prices (see chart). The increases have been implemented by the major producers in different ways. Church & Dwight, for example, continues to advance pricing as contracts allow, according to Art Esposito, senior business director in the company's specialty products division.
FMC Corp. announced an across-the-board increase of $30/ton on January, 1 for its animal nutrition and USP and industrial grades of sodium bicarbonate.
Despite the higher prices, producers continue to see margins compress, says Richard White, director of sales and marketing for specialty sodium products at FMC. He attributes the squeeze to "increasing energy and raw materials costs," as well as "escalating distribution and logistics-related expenses, driven by higher oil prices."
Transportation costs for bicarbonate producers have risen on average over 25% in the past year, and in some cases by as much as 40%, depending on carrier availability and fuel costs, notes Esposito. And in the past two years, he adds, pricing for soda ash, the raw material for sodium bicarbonate, has jumped "dramatically," by more than 35%.
While there is little sodium bicarbonate producers can do to control prices of their energy and raw materials, they are doing something about freight costs. Their response has been to shift to a FOB freight policy, where the buyer pays whatever the transportation costs are at the time the goods are shipped. Prior to this change, which has taken place in the industry over the past few years, customers paid a fixed amount for transportation, which was spelled out in the contract, even if shipping costs rose later. Explaining the new policy, White says simply that "we will no longer carry the risk of higher and more volatile transportation costs."
On the macro level, supply and demand of sodium bicarbonate is balanced, says Esposito. But he adds that the supply of higher value, more differentiated grades (pharmaceutical and food-grade products) "has tightened during the past year or so, creating a bit of an imbalance in the marketplace."
Despite shortages of some specialized grades, overall supply of sodium bicarbonate "continues to outpace demand," says David Calvo, business manager for Solvay Chemicals. He notes that capacity utilization rates for the chemical have been "below 80% for the past five years."
Global capacity for sodium bicarbonate is about 1.7 million tons, according to The Sentient Group, a private equity firm with investments in the industry. Church & Dwight is the largest producer of bicarbonate in the U.S. Other major U.S. producers are FMC, Solvay Chemicals and Natural Soda. Solvay is the largest producer of bicarbonate in Europe, while in Japan, Asahi Glass leads the market. Demand for sodium bicarbonate is particularly strong in Asia. But little of the chemical produced in North America and Europe is exported to Asia because of prohibitive transportation costs. There is, however, a strong import-export market for soda ash, the precursor of sodium bicarbonate.
On the industrial side, most market segments for bicarbonate are experiencing "GDP-like" growth, says White. But a number of industrial niche applications are doing better than average, says Esposito. He points to "continued growth" of the blast media business. Sodium bicarbonate demand in the air pollution control area is growing at double digit rates, he adds, "albeit from a relatively modest base." Household and consumer products—pet care and refrigerator/freezer deodorization, for example—are another bright spot for the sodium bicarbonate business, says Esposito.
Solvay says demand for sodium bicarbonate is particularly high in air pollution control applications. In mid-2005, the company set up a new unit dubbed SOLVair to market bicarbonate as well as its trona, sodium sulfite, soda ash and hydrogen peroxide products as a one-stop-shopping solution for controlling a broad spectrum of plant emissions.
But prospects for some other sodium bicarbonate markets are less than stellar. In the animal feed segment, demand for the chemical "has essentially flattened," says Esposito, "with the growth transitioning to trona-based alternatives, including sodium sesquicarbonate." Users prefer sesquicarbonate products in animal feed, says White, because of its efficacy and value compared to bicarbonate.
Meanwhile, slow escalation of sodium bicarbonate prices seems likely because of steadily rising energy costs, particularly natural gas, and environmental regulations, which are getting stiffer and more expensive.
Producers say the supply and demand for soda ash will also play a role in determining the selling prices of sodium bicarbonate. Some tightness in soda ash, along with higher costs, can be expected, if U.S. Geological Survey (USGS) figures are any guide. Production of soda ash in the U.S. barely edged up in 2005, increasing only about 0.9% over the previous year, the agency reports. But worldwide demand for soda ash in 2006 will be 1.5%-2.0%, and slightly higher in the U.S.
Solvay's Calvo sees no shortage of sodium bicarbonate supply in the near term, however as "supply will continue to outpace demand."
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