Strong price increase of soda ash

Recently, due to the lower than expected expansion of soda ash capacity, the soda ash market has entered a rapid upward trend since early November, with prices rising strongly. According to data from Zhuochuang Information, as of December 7th, the month on month increase was 43.8%.

"At present, the overall inventory level of soda ash manufacturers is not high, with sufficient orders, and some manufacturers are still controlling orders. Downstream demand is stable, and end users mainly purchase on a mandatory basis. It is expected that the domestic soda ash market will mainly consolidate at a high level in December." said Deng Qiuyu, an analyst at Zhuochuang Information.

Spot inventory is tight

Since November, due to the fermentation of environmental inspection news from Qinghai Alkali Factory, the operating rate of pure alkali enterprises has decreased and lasted for a long time. Coupled with factors such as short-term load reduction or shutdown of individual enterprise facilities, the supply of goods in the pure alkali market has been tight, and inventory has significantly decreased.

"According to data from Longzhong Information, the capacity utilization rate of soda ash enterprises in November was 85.83%, a decrease of 2.98% compared to the previous month; the production of soda ash was 2.8636 million tons, a decrease of 198200 tons compared to the previous month, a decrease of 6.47%." said Li Mengjie, an analyst at Longzhong Information.

As of December 7th, the 1.5 million tons/year and 1.4 million tons/year pure alkali plants of China Salt Qinghai Kunlun Alkali Industry Co., Ltd. and China Salt Qinghai Fatou Alkali Industry Co., Ltd. have been operating under reduced load; Shaanxi Xinghua Group Co., Ltd.'s 300000 ton/year pure alkali plant shutdown and maintenance. Although the maintenance of the third phase pure alkali plant of Henan Jindadi Chemical Co., Ltd. was completed and restarted, the third 1 million ton/year production line of Inner Mongolia Yuanxing Energy Co., Ltd. Alxa pure alkali project began to be put into operation. However, due to the unpredictable production time, it has little effect on filling the market supply gap in the short term.

"As of December 7th, the total inventory of soda ash plants during the week reached 367000 tons, a decrease of 13500 tons compared to the previous week, a decrease of 3.55%. Currently, the inventory of light soda ash is maintained for 10-20 days, and some companies have low inventory, only about a week," said Sun Xuefei, an analyst at Longzhong Information Weekly.

Stable demand

Soda is an important raw material for the production of float glass. According to Longzhong Information, in 2023, float glass accounted for 42.25% of the consumption of soda ash. As of December 7th, it has increased by 27 yuan compared to November 30th, with a growth rate of 1.38%, providing support for the price increase of soda ash.

"Float glass and photovoltaic glass both belong to rigid production, and once the production line is ignited, it needs to be produced 24 hours a day without interruption. As long as the glass factory still has profit space, it will not stop for cold repair until the kiln age is reached without accidents." Fan Ajiao, a researcher at the Hongye Futures Financial Research Institute, analyzed, "Currently, the daily melting rate is significantly increasing and maintaining a high level, which also means that the demand for heavy alkali in float glass is high and stable."

"Driven by the expansion of production capacity in industries such as photovoltaic glass and lithium carbonate, the demand for caustic soda will maintain a growth trend in 2023. The downstream demand for caustic soda will not change much from November to December. However, driven by the mentality of buying up instead of buying down, the strong rise in caustic soda futures prices has driven a spot trading atmosphere, which has increased the enthusiasm of middle and downstream buyers." said Deng Qiuyu.

"In the early stage, the downstream inventory of light alkali was low, and it has been in a replenishment situation recently, with an increasing trend in consumption. However, due to the high spot price of pure alkali, some downstream products have reduced inventory due to increased cost pressure. It is expected that the future market of pure alkali will mainly focus on on-demand procurement." said Li Mengjie.

Mutual promotion between futures and cash

As of December 7th, the 2401 contract for soda ash futures has increased by nearly a thousand yuan since early November.

In fact, the price of soda ash was recently suppressed. It is reported that in early November, the inventory of soda ash manufacturers increased from 120000 tons in September to 530000 tons. At the same time, the market generally expects that Yuanxing Energy's third 1 million ton/year soda ash production line will be put into operation in the fourth quarter, resulting in low soda ash prices, and futures prices have been hovering around 1700 yuan.

However, the price of soda ash began to rise in mid November. On the one hand, this is due to the delayed production of new production capacity, coupled with an unexpected decrease in available spot goods, resulting in a difference in the expected supply increase, forming a pulling force. On the other hand, it is due to the resonance of capital games. The price elasticity of soda ash itself is very large, and this variety is highly sought after by funds in commodity futures. Speculative demand is easily triggered, and the market buys up but not down, resulting in a particularly obvious "herd effect". Firstly, futures led the rise of spot prices, followed by spot prices leading the rise of futures, forming a spiral of positive feedback for futures and spot prices Fan Ajiao said.

Although there is still a potential bearish outlook for the increase in supply of soda ash in the later stage, and the market may have peaked, based on the recent tight spot situation, the path of bearish realization may not be smooth.

"At present, the spot circulation is very low, and the price is getting higher as it rises. In the short term, the supply-demand contradiction of soda ash seems to be unable to be effectively resolved, and can only wait until the future production capacity of soda ash increases. Personally, I believe that the surge in soda ash also has elements of market over interpretation and speculation. I hope the market will not raise prices and let them return to a reasonable range." Zhang Fei, an analyst in the chemical sector of CITIC Securities Futures Co., Ltd., called for this. (Wang Hongzhen)

Transferred from: China Chemical Daily