The Supply-Demand Relationship in the Soda Ash Industry Is Tensive, And Product Prices Are Expected to Rise

Affected by the epidemic, the operating rate of the soda ash industry has dropped sharply, while the downstream demand market has steadily increased. The mismatch of the supply and demand structure of the domestic soda ash industry is prominent. With the gradual recovery of construction in the later period, the tight relationship between supply and demand in the soda ash industry is expected to be alleviated.

Shortage of Soda Ash Supply

Since August, the soda ash supply market has been struggling. Affected by illegal mining incidents in Qinghai soda ash manufacturers, the government requires enterprises to reduce their production by 40% starting in late August, and the soda ash operating rate in the area will drop to more than half of the current rate. At the same time, the 900,000 tons production of soda ash from Sichuan Hebang needs to be shut down for 3 months, and the operating rate in Southwestern plummeted to 45.47% in late August. Besides, the annual soda ash production capacity involved in the testing from late August to mid-September reached 5.1 million tons, further intensifying the supply-demand relationship of soda ash.

Data shows that from January to August this year, the average operating load of domestic soda ash manufacturers was 78.6%, a year-on-year decrease of 5.9%. Especially since August, some large factories have restricted production and reduced production, and the operating rate of soda ash manufacturers has continued to drop. Since August, the average operating load of soda ash manufacturers has decreased by 2% per week, which is equivalent to a weekly reduction of 14,000 tons of soda ash.

The Demand Sector Is Stable, And the Demand for Heavy Alkali Is Growing Rapidly

Soda ash is one of the most important raw materials in the basic chemical industry. In the demand structure, there are chiefly plate glass, silicate, sodium metabisulfite, and daily glass, mainly used in construction materials, chemical production, and medical equipment. Downstream industries have clear requirements for light and heavy soda ash. Generally, light soda ash is used in daily glass, floor scrubbers, and alumina, while heavy soda ash is mainly used in the plate glass market. In the demand structure of soda ash, plate glass accounts for more than half of the soda ash market, which is the most important downstream market for soda ash.

China is the world's largest consumer of soda ash. In 2019, the domestic soda ash consumption was 26.78 million tons, an increase of 8.3% year-on-year. The demand growth of heavy soda ash was far better than that of light soda ash. As a demand area for soda ash, plate glass strongly promotes the development of the soda ash industry.

From the downstream market of plate glass, 70% of the market comes from the construction field, mainly used for doors, windows, and interior decoration of buildings, and plate glass also has certain demand in the automotive industry, in which the development of real estate has a great impact on the long-term development of soda ash. Affected by the epidemic, the cumulative growth rate of newly started and completed real estate areas across the country has again declined, with a year-on-year decrease of 12.8% and 11.3% from January to May. Until the second quarter, domestic industries have resumed work and production under the normalization of epidemic prevention and control, and the government has adopted various incentives and preferential policies, thus, the real estate boom has rebounded. The cumulative production growth rate of plate glass from January to May has been the first to return to positive, an increase of 0.5% year-on-year. Driven by the recovery of the real estate industry, soda ash is expected to continue to rise.

Besides, due to the high maintenance cost and long cycle of the production of plate glass, it will maintain continuous production for 8 to 10 years once it puts into production, so the demand for soda ash is large and stable. The production of 1 ton of plate glass requires 0.2 tons of heavy soda ash, and the cost of heavy soda ash accounts for 25% of the production cost of float glass. Therefore, the downstream market of plate glass is sensitive to fluctuations in soda ash prices.

With the acceleration of domestic urbanization and the improvement of people's living standards, the production and sales rate of plate glass has remained high. In 2019, the domestic production of plate glass was 930 million weight boxes, a year-on-year increase of 6.9%, with the production and sales rate of 97%. The price of plate glass has been at a high level since 2017. This year, the price has rebounded rapidly after being affected by the epidemic in a short period. The profit margin of downstream companies is large, and the demand for heavy soda ash has steadily increased.

Soda Ash Prices Are Expected to Continue to Rise

Recently, there are three times of price increase in the soda ash industry, with each increase ranging from 200 to 300 yuan per ton. On August 21, some manufacturers of heavy soda ash in East rose by 300 yuan per ton.

From the perspective of supply and demand, the demand for soda ash of the downstream market has steadily increased. While the industry operating rate is low, about 71% due to the epidemic and flood conditions, in which the production capacity is lower than that expected. The average daily loss of enterprises can reach 29,300 tons, rising prices have become one of the means for companies to survive.

Also, the glass companies and other light soda companies in the early stage have a strong mentality for the price increase of soda ash, but the situation has improved significantly at the end of last month as the raw material inventory of downstream companies continues to consume, and there is a possibility of high-priced replenishment in the later stage.

Concentration Are Expected to Be Improved

At present, there are about 40 domestic soda ash production enterprises, of which 13 have a production capacity greater than 1 million tons per year. After years of development, my country's soda ash industry has formed four major production groups, including Tangshan Sanyou, China Salt Industry, Henan Jinshan, and Shandong Haihua, accounting for 36.9% of the national production capacity in total. The supply pattern is stable, but the industry concentration needs to be further improved.