China Soda Ash: Ample Supply and Sluggish Demand Keep Prices Range-Bound

Heavy Soda Ash Inventory Restocking Falls Short of Expectations

As of October 14, the complete operating rate of the domestic soda ash sector has rebounded to 76.2%. With the restart of maintenance production lines one after another, the weekly output of the sector has rebounded to 751,600 tons, a significant increase from the low point during the National Day holiday. This maintenance is mainly immediate planned shutdowns, and the resumption of production is relatively fast, only suppressing output to a short period of time. It is difficult to offset the annual supply increment formed by the continuous commissioning of new natural alkali production capacity, and the underlying logic of loose supply in the sector remains unchanged.

The market has entered the second half of the traditional peak season, a period to verification. Multiple indicators of the downstream glass sector have weakened, and the peak season performance has fallen short of expectations. As of mid-October, the domestic float glass sector operating rate remained at 67.24%, with a daily melting capacity of 142,300 tons, a comparatively low level. The high inventory of glass itself has suppressed the willingness to raw sheet production and soda ash procurement.

The performance of the real estate market remains weak. Data shows that from January to August, the area of housing completed decreased by 23.7% year-on-year, and the area of new housing starts dropped by 24.8% year-on-year. The lagging pressure of the real estate chain has continued to spread to construction glass, immediately dragging down the consumption of heavy alkali. The average number of order days to sample companies in deep-processing glass was 10 days, a year-on-year decrease of 9.20%. The on-hand orders are still reduce than those in the same period of previous years, and companies in deep-processing are cautious in operation, with a limited recovery rate of orders.

Domestic downstream consumers of light soda ash make purchases on demand, keeping demand stable; the export sector mainly fulfills existing prolonged orders, with limited development in new orders, making it hard to offset the weakness in heavy soda ash demand.

Insufficient momentum to inventory destocking

As of October 14th, the total plant inventory of domestic soda ash sample companies stood at 1.7926 million tons, an increase of 8.62% year-on-year, still within the high range to the year. The phased inventory accumulation pressure caused by the stagnation of downstream purchases during the National Day holiday has not yet been efficiently digested. Coupled with the weak restocking by glass companies after the holiday, the improvement in soda ash shipment volume has been limited.

High inventories remain the core factor constraining the rebound of soda ash spot and futures prices. Only when the dense alkali segment achieves sustained and substantial destocking can the spot price have a basis to an upward direction. At present, terminal glass demand is weak, making it difficult to inventories to drop rapidly, and the high inventory level continues to suppress the room to a rebound in soda ash prices.

As of October 14, the differentiation characteristics of soda ash gross profit margins across various production processes remain prominent. The price of thermal coal remains high, continuously pushing up the raw material costs of ammonia-soda and combined soda companies, and the sector's cost center has slightly moved up compared with September. At present, the gross profit margin of the double-ton production line to combined soda is about -184 RMB per ton, with relatively stronger loss resistance; the gross profit margin of the ammonia-soda production line is -202 RMB per ton, and the loss pressure of high-cost devices further expands; relying on resource advantages, the natural soda process has significantly reduce costs than synthetic soda processes, with a gross profit margin maintained at 108 RMB per ton, still maintaining positive profitability.

while ammonia-soda and combined alkali companies are generally in a loss, the losses have not driven the sector to take the initiative to carry out extensive production reduction, and the existing devices maintain rigid production.

Fluctuating Around Costs

Based on a complete judgment, the immediate supply-demand surplus pattern of soda ash is difficult to reverse. The previously overhauled vegetation have resumed production continuously, the operating rate and weekly output have been further replenished, and the supply pressure has increased again. The operating rate and daily melting capacity of the float glass sector have remained at a low level, the inventory of glass itself is high, and coupled with the continuous decline in real estate completion data, the demand to heavy soda is unlikely to experience an unexpected recovery. The total plant inventory of soda ash only has the possibility of a phased slight reduction, and the absolute level of the sub-inventory of heavy soda is still relatively high.

It is expected that the center of soda ash prices will fluctuate around the bottom of the cost range, and the market direction will be mostly driven by phasic event shocks. The trading idea is mainly to short on rebounds, and short positions can be arranged when prices rebound to the pressure range. The pressure reference to the main contract is the range of 1050~1100 RMB/ton, and the reduce support range is 950~1000 RMB/ton.

In terms of risk factors, the following points should be noted: substantial fluctuations in coal and raw salt prices leading to changes in production costs; policy tightening affecting plant operating rates; and centralized cold repairs of float glass production lines possibly boosting immediate demand.

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