abstract
The contradiction between supply and demand intensifies. In 2024, the focus of Caustic Soda prices may further decline. In 2023, the increase in caustic soda supply in China exceeded the increase in demand, and the export performance was weaker than last year. Prices in various markets were mainly fluctuating downward, and profitability declined. In 2024, it is expected that the supply increment in the caustic soda market will still exceed the demand increment, and there will be no significant increase in downstream market profits and prices. There is a possibility of further decline in liquid alkali prices. However, considering factors such as alkali chlorine balance and profitability of chlor alkali plants, the price decline may slow down.
In 2023, the supply increment of caustic soda in China exceeded the demand increment, and the export performance was weaker than last year. Prices in various markets were mainly fluctuating downward, and the profit situation worsened. In 2024, it is expected that the supply increment in the caustic soda market will still exceed the demand increment, and there will be no significant increase in downstream market profits and prices. There is a possibility of further decline in liquid alkali prices. However, considering factors such as alkali chlorine balance and profitability of chlor alkali plants, the price decline may slow down.
The price center has fallen, and the profit level of the caustic soda industry will decrease in 2023
Compared with the prices in the past five years, 32% of Shandong's liquid alkali prices were at a moderate level in 2023, mainly due to the relatively high liquid alkali prices in 2022. In 2023, the overall market price of 32% liquid alkali in Shandong showed a fluctuating downward trend, with an annual average price dropping by 22.33% compared to 2022. From the price trend of the year, in 2023, the 32% liquid alkali price in Shandong was mainly characterized by a fluctuating decline, with the highest point occurring at the beginning of the year and the lowest point occurring from July to August. The main reasons for the fluctuation and decline of liquid alkali prices in 2023 are as follows: on the one hand, chlor alkali enterprises have a higher production enthusiasm after the year, but the recovery of terminal demand is not as expected, and the market presents a situation of supply exceeding demand, with supply increment significantly exceeding demand increment; On the other hand, the month on month decrease in export volume in 2023 has weakened the supportive effect of exports on the domestic market.
Due to the fluctuation and downward trend of liquid alkali prices in 2023, as well as the low operating level of liquid chlorine prices, the profitability performance of the chlor alkali unit ECU is poor. The average annual profit of the chlor alkali unit ECU in Shandong region is 76.22 yuan/ton, a decrease of 90.76% compared to the average profit of 824.70 yuan/ton in 2022. However, the average annual loss of ECU for chlor alkali units without self owned power plants in Shandong region is 283.59 yuan/ton, which is 577.41 yuan/ton higher than the average profit of ECU in 2022, from profit to loss.
Capacity expansion combined with increased operating load rate to increase caustic soda production
In 2023, China's caustic soda production was 39.993 million tons, an increase of 8.54% compared to last year's 36.8478 million tons. The significant increase in production was mainly due to the expansion of new production capacity in 2023, and the long-term high operating load rate of chlor alkali plants. In 2023, the new production capacity of caustic soda was 1.43 million tons. The original long-term parking capacity was resumed by 200000 tons, and 300000 tons of ineffective production capacity were eliminated. In Jiangsu, 200000 tons of caustic soda production capacity was withdrawn from the market, and some production capacity adjustments increased by 40000 tons, resulting in a net increase of 1.17 million tons. In 2023, the caustic soda production capacity was 47.035 million tons, an increase of 2.55% compared to the previous period.
While expanding production capacity, the operating load rate of chlor alkali plants has also increased. After the Spring Festival of 2023, due to the good performance of caustic soda prices and the optimistic outlook of chlor alkali enterprises on the future market, the operating enthusiasm was high, rising to 89% at one point. Although the operating load rate was lowered due to maintenance and poor profitability, the overall capacity utilization rate of chlor alkali plants for the whole year was about 85.03%, an increase of 4.69 percentage points from last year.
Based on the comprehensive expansion of caustic soda production and the performance of operating load rate, the monthly production in 2023 has reached a new high compared to the historical five years. This is mainly due to the significant increase in caustic soda production capacity this year, and the operating load rate in some months has also increased compared to the same month in previous years.
Weak demand performance, dual decrease in export volume and price
According to Zhuochuang Information, the domestic consumption of caustic soda in 2023 was 34.492 million tons, a year-on-year increase of 7.48%. The increase in consumption is mainly due to the addition of new production capacity in industries such as alumina and papermaking, and the improvement of capacity utilization in some downstream industries after industrial structure adjustment. Although the domestic consumption of caustic soda has increased, the growth rate of consumption is lower than the growth rate of caustic soda production. From the performance of downstream industries this year, the production enthusiasm of downstream industries is not high due to limited profits, poor shipments, and shortage of raw materials. In addition, cautious observation and cost control of the caustic soda market have led to low stocking enthusiasm, and rigid demand procurement is often maintained. The support for caustic soda prices on the demand side is relatively weak.
In the third and fourth quarters of 2022, European chlor alkali enterprises were operating at reduced loads due to energy shortages and increased costs, resulting in an increase in the supply gap of liquid alkali. They imported more caustic soda from China. By 2023, the load of European chlor alkali enterprises will increase, and the supply of liquid alkali will increase. The new export volume from China to Europe will recover to the previous level, with a significant reduction. In addition, Asian demand is average, and overall foreign demand is decreasing. In addition, the FOB export intention transaction price in Northeast Asia is weak due to weak demand, and most of the time, downstream and traders abroad will be cautious or bearish towards domestic liquid alkali, with low intention to sign contracts, which will lower the counteroffer price, The overall transaction price of FOB exports from Northeast Asia in 2023 has fluctuated and declined. As of December 29, 2023, the weekly average price was $345 per dry ton, a decrease of 36.11% from the beginning of the year. Most of the time, there is no arbitrage space for exports, and the export volume has decreased. In the context of weak demand and a lack of arbitrage space for exports for most of the time, the export volume of caustic soda in China is expected to decline in 2023, reaching 2.4994 million tons, a year-on-year decrease of 16.68%. The decline in export performance is unlikely to have a positive impact on domestic caustic soda prices.
The supply growth rate of caustic soda market in 2024 is still greater than the demand growth rate, and the price center may further explore
For the 2024 Chinese liquid caustic soda market, Zhuochuang Information believes that the overall price is expected to be relatively weak compared to recent years, with an annual average price decline compared to 2023. The main influencing factors include the following aspects:
In terms of supply, it is necessary to closely monitor the progress of the new production capacity of domestic caustic soda in 2024. There are still 2 million tons of new production capacity planned to be put into operation in 2024, with a considerable scale of planned production. With the release of new production capacity and little change in the operation of existing production capacity, it is expected that the caustic soda production in 2024 will increase compared to 2023, which will have a sustained negative impact on the market price of liquid caustic soda.
In terms of exports, the overall export volume of domestic liquid alkali in 2024 is expected to decrease against the backdrop of no speculative demand stimulus. The support for domestic caustic soda market prices is relatively limited, making it difficult to have a strong boosting effect.
In terms of demand, there are still some planned new production capacity additions in the downstream alumina and new energy industries (such as lithium batteries), as well as the paper (pulp) industry in 2024, which may increase the demand for caustic soda. However, other traditional alkali consuming industries, such as chemical, printing and dyeing, chemical fiber, and Water Treatment, have not had large-scale new production capacity additions. It is expected that there will be little change in overall demand for caustic soda and there will be no obvious highlights.
From the operation of downstream industries, it can be seen that the largest downstream aluminum oxide industry has been continuously expanding in recent years, continuously experiencing a situation of oversupply and poor profitability. In addition, due to the shortage of bauxite supply in some time periods, it is expected that some enterprises will face significant pressure to reduce production, but there will still be some new production capacity put into operation in the later stage. Coupled with the low quality of some bauxite, its demand for caustic soda is expected to continue to increase, with strong support for demand. Other traditional non alumina industries (such as printing and dyeing, chemical industry, light industry, etc.) are expected to operate weakly, and most of them are in a period of industry adjustment. There is also a possibility of slight production reduction in stages.
Overall, it is expected that the domestic downstream demand for caustic soda will still vary among different industries in 2024, and the changes in caustic soda demand between regions will show differences. It is necessary to closely monitor the immediate progress of downstream capacity adjustments for major alkali consuming industries.
If both the supply and demand sides plan to increase production capacity and can be put into operation smoothly, it is expected that the increase in caustic soda supply in 2024 will be greater than the increase in demand, which will have a certain negative impact on liquid alkali prices.
However, three points need to be closely monitored: first, the impact of fluctuations in liquid alkali futures prices on spot prices in 2024; The second is the impact of phased changes in the efficiency of liquid alkali logistics transportation on the market supply chain, and the third is the performance of the liquid chlorine market and the profitability of the chlor alkali unit ECU.
Based on comprehensive analysis of various factors, it is expected that in 2024, the domestic liquid alkali market will continue to decline in average annual prices when the supply increment is greater than the demand increment and most downstream industries are difficult to show strong performance. The actual decline should be focused on the actual production status of new production capacity at both supply and demand ends and the profitability performance of chlor alkali plants.
