bassboat| Soda ash: The impact of inventory on prices

Deng Qiuyu, an information analyst at Zhuochuang

[introduction] the fluctuation of soda ash spot market price is obviously driven by supply and demand.BassboatInventory can reflect the results of the game between supply and demand to a certain extent, so inventory has a certain impact on the price of soda ash market, and the two generally show a negative correlation.

End-of-period inventory = total supply-total demand, which is the embodiment of the result of supply and demand change. From 2019 to 2023, the production capacity, output and consumption of soda ash all showed an increasing trend, and the overall demand growth rate was higher than the supply growth rate. Soda ash industry supply and demand from loose to tight, again to loose, industry inventory first decreased and then increased. The industry maintains a high demeanor, with prices and profits at a high level. In 2024, the production capacity of pure alkali was further expanded, the supply was relaxed, the inventory at the end of the period showed an increasing trend, and the price center of gravity and profit space decreased compared with the same period last year.

The compound growth rate of soda production capacity in China from 2019 to 2023 is 3.Bassboat.4%, output first decreased and then increased, mainly affected by supply and demand, environmental protection, safety and other factors. The market demand for float glass improved in 2020, the production capacity expanded obviously in the second half of the year, coupled with the continuous development of the new energy industry, the demand for soda ash from photovoltaic glass and lithium carbonate continued to increase, the demand for soda ash accelerated from 2021 to 2022, and the inventory decreased significantly at the end of the period. the market price center of gravity has moved steadily and upward. With the improvement of the prosperity of the industry, market prices remain high, the profitability of the industry is good, and the new devices are gradually put into production. In the second half of 2023, a total of 5.5 million tons of new production capacity is added, the supply tends to be relaxed, the final inventory picks up somewhat, and the price center of gravity is downward.

In the early 2024, new production capacity has been released one after another, and new production capacity has been continuously put into production, coupled with the fact that the industry still maintains a certain profit space, manufacturers maintain a high enthusiasm to start work, and the supply of soda ash keeps growing. On the other hand, under the background of increasing supply pressure of float glass downstream, the marginal consumption of soda ash is weakened. The main demand increment of soda ash is still based on photovoltaic glass and lithium carbonate, the demand growth rate is not as fast as the supply growth rate, the end-of-period inventory of soda ash industry continues to increase, and the market price center of gravity has moved down.

The two more important inventory components in the final inventory are the inventory level of upstream production enterprises and the inventory level of downstream raw materials, which affect the pricing expectation of soda ash enterprises and the purchasing progress of downstream users in the future. thus it has a certain impact on the market price.

From the characteristics of soda ash enterprise inventory and market price fluctuation, there is a negative correlation between them. The main factors affecting the change of inventory are market supply and demand and market expectation. When the general market changes from rising to falling, market expectations change, traders and downstream users become more cautious and wait-and-see mentality increases, procurement generally slows down, resulting in increased pressure on soda ash manufacturers to ship, and when inventory increases to a certain extent, soda ash manufacturers often adopt the strategy of "price for quantity", resulting in prices falling. The price increase often starts from the high point of inventory, and only after a strong expectation of price increase in the market, the enthusiasm of downstream users and traders to take goods will improve, and the inventory of soda ash manufacturers will be transferred downwards. The inventory changes of soda ash manufacturers from 2021 to 2022 are basically in line with the above law, which is slightly different in 2023, and the price still falls when the inventory is low. Mainly because of the concentration of new production capacity in the second half of 2023 and pessimistic market expectations, manufacturers take the initiative to go to the warehouse for sales in the first half of the year in order to lock orders at higher profits.

2024 basically conforms to this law, from a phased point of view:

From January to March, the price of soda ash market declined as a whole, and the inventory of soda ash manufacturers increased. In the first quarter, the production capacity of new devices in Inner Mongolia continued to release, coupled with the profitability of the industry, the overall enthusiasm of manufacturers to start work is relatively high, and the supply of goods in the market is adequate, but after the end of the concentrated pre-holiday in January, some downstream users entered the holiday state ahead of schedule, and the lack of new orders during the Spring Festival in February, coupled with some light alkali downstream holiday time lasted until March. During the stage, the overall inventory of soda ash manufacturers continued to pick up, with a cumulative increase of 473000 tons, an increase of 126.8%. The factory shipping pressure was obvious, and the price fell by 31%.

April-May soda ash market prices ushered in a rebound, manufacturers inventory fell slightly. From April to May, some devices were overhauled, the supply of soda ash market decreased, coupled with the obvious rise in futures prices, driving spot trading sentiment, the situation of soda ash manufacturers taking orders improved, and some manufacturers took orders until late May, the overall inventory decreased. During the period, inventories decreased by 71000 tons, or 7.8%, and market prices rose by about 15%.

There is also a negative correlation between the soda stock days of downstream manufacturers and the price of soda. When the downstream inventory is on the high side, the purchasing quantity of soda ash will be reduced, and the shipping pressure of soda ash manufacturers will increase, thus reducing the price to the warehouse; and usually affected by the "buy up not buy down mentality", when the market price shows an upward trend, downstream users will appropriately increase the reserve of raw materials in order to reduce costs. The number of days of raw material soda stock in downstream float glass manufacturers decreased as a whole from 2021 to 2024, on the one hand, the soda price was high in 2021-2022, and the other was the increase in soda supply from 2023 to 2024, which was expected to increase, and the downstream actively reduced the raw material soda stock.

The center of gravity of soda ash price is expected to fluctuate downward in the second half of 2024, and the inventory of the industry will gradually increase.

There are still 2.4 million tons of soda production planned to be put into production in 2024, and the domestic soda production capacity may reach more than 40 million tons by the end of the year, while the background of high energy production of downstream float glass will continue to test the strength of rigid demand, and the overall structure of supply and demand may continue to be weak. the main increment of soda demand still depends on the new energy industry, and the overall growth rate of demand is expected to be lower than that of supply. The third quarter is the peak season for routine maintenance of soda ash manufacturers, but most of the maintenance plans have not yet been determined, and some new devices are planned to be put into production during this period. Summer is generally the relatively peak season of soda demand, and it is expected that the overall inventory growth of the soda industry in the third quarter may be limited, and there is still some support for prices. However, optimism is relatively limited in the fourth quarter, with the continuous increase in the starting load of the industry and the continuous release of new production capacity, the supply pressure of the industry is expected to further increase, and market prices may fluctuate downwards.