On August 24th, soda ash once again experienced a significant market movement, directly hitting the upper limit of the price increase.
However, there is no need to panic. In the current market conditions, sharp rises and falls are normal, and after a significant increase, there must inevitably be a substantial decrease.
Looking at the situation now, the logic behind soda ash is very clear: there is no spot supply. The reason for the lack of spot supply is also simple: everyone is focusing on maintenance, leading to a decrease in capacity utilization. Moreover, the production start-up of Yuanxing, which was expected by the market, did not meet expectations, resulting in a severe shortage of spot goods. Many manufacturers have already stopped quoting prices, and it is aptly described as "no soda ash in the world."
The current situation is also straightforward: in the absence of goods, the price elasticity is too high, and it is still up to the sellers to decide.
At the same time, since Yuanxing has already started production and is currently ramping up, even with the current significant increase, the price of the January contract is around 2000 yuan, while the overseas price is around 2200 yuan. The price has risen too quickly, and domestic manufacturers simply do not have time to place orders. Moreover, the shortage is relatively short-lived, so imports and exports cannot effectively curb the situation, unlike in April and May when expectations could be reversed.
Therefore, the biggest problem with soda ash now is the lack of goods, which is the basis for the unbridled confidence of the bulls in soda ash. In the absence of significant improvements in the fundamentals, the current high price depends on the bottom line of human nature and the standards of the exchange.
However, nothing is insurmountable. Any bullish argument will be weakened by rising prices, and any bearish argument will be weakened by falling prices.
All of this is now on the table, and the key question is whether the price has already been high enough?
Firstly, there is room for export reduction. If the price is too high, domestic manufacturers will reduce exports, thereby increasing domestic supply and narrowing the supply-demand gap. Unlike imports, export control is easier and more timely. In July 2023, China exported 155,100 tons of soda ash, a year-on-year decrease of 25.94%, and a month-on-month decrease of 4.86%.Second, there is significant room for improvement in capacity utilization rates.
The capacity utilization rate for soda ash has declined, but high prices will attract manufacturers to quickly resume production, as halting production at this time would be like making clothes for others.
Third, there is still room for improvement in the heavy alkali ratio.
The economy is not very good, and the demand for light alkali may weaken, leaving room for an increase in the heavy alkali ratio. In the first half of the year, manufacturers pulled their capacity utilization rates up to 90%, and the heavy alkali ratio up to 55%.
Now is the time for centralized maintenance, and in the future, there may be a centralized resumption of production. The more aggressive the current price increase, the more severe the potential future decline may be.
Fourth, glass production may be reduced.
As the price of soda ash rises, the cost of glass also increases, but we can recently observe that the overall trend of glass prices is very bearish. In the future, glass production is likely to be reduced, with the current capacity utilization rate in the entire glass industry around 81%. However, recent real estate data is quite poor, and the liquidity of enterprises themselves is also not good. Although glass inventory has decreased, it is still at a historically high level.
There is no supply problem that high prices cannot solve; if there is, it can only mean that the prices are not high enough. Today's market prices have already reached 2800 or even 3000, and such high profits are already sufficient to attract attention.
Currently, the soda ash market is dominated by bulls, and market expectations suggest that it may not truly accumulate inventory until October. Therefore, optimists now believe that the price of soda ash may reach new highs. As a result, bears are very cautious now, as no one knows what the short-term price can reach.
Why has the soda ash market experienced significant ups and downs this year?Because Yuanxing and Jinshan have such large production capacities that they can completely reverse market prices. From severe supply shortages to severe oversupply, the market swings back and forth.
In this process, the main factor driving the direction of the market trend is the progress of Yuanxing's production start-up. Currently, it is not meeting expectations, but once it exceeds expectations in the future, there will also be a significant drop.
Now, what is missing is a news about Yuanxing's production start-up. Once the secondary line is ignited, or if the maintenance ends on a large scale ahead of schedule, the price of soda ash is likely to start falling again.
The situation for the distant months is very clear, the oversupply pattern will not change, because soda ash is not a very complex process. If it is not put into production as soon as possible, Yuanxing will also face significant financial pressure.
The current high price is just driven up by the shortage in the near months. Assuming that in December only 2 lines are running at full capacity (the plan is 4 lines at full capacity, 13,000 tons), there will be 8,000 tons of supply per day, which is 56,000 tons per week. Adding Jinshan's 5,000-ton capacity, there will be 91,000 tons per week. Once the maintenance ends, the production capacity will be severely exceeded.
Many people are worried that Yuanxing's lines 2-4 will not meet expectations. I am the opposite. Lines 2-4 are likely to exceed expectations because Line 1 has already gone through most of the problems that are sure to occur. Naturally, the start-up of lines 2-4 will be accelerated, but the market may not think so.
Of course, it is not yet a turning point for the market, but the price for the distant months is already very attractive now. Investors can gradually layout and wait until the utilization rate of production capacity increases, or after Yuanxing's Line 2 starts production, then increase the position.
Risk warning: Short-term speculative sentiment is unpredictable, pay attention to risks.
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