The Caustic Soda market fluctuated and declined in the first half of the year. As of the end of June, the price of liquid caustic soda (32%) had reached 780 yuan (ton price, the same below), a decrease of 31.58% compared to the beginning of the year. The industry is under pressure and moving forward, with thin profits. In the future, the contradiction between supply and demand of caustic soda still exists, and there is still room for overall downward adjustment. Industry insiders believe that there may be favorable factors during certain periods to help the caustic soda market rise, but the space is limited.
Since the second half of 2022, the caustic soda market has been continuously sluggish due to supply-demand conflicts. Taking the North China market as an example, the average price of caustic soda in the first half of the year was 978 yuan, the high price was 1230 yuan at the end of January, and the low price was 710 yuan on June 20.
Specifically, in January, the caustic soda market first fell and then rebounded, mainly due to the adjustment of epidemic prevention and control policies combined with favorable factors such as holidays, and the positive attitude of traders in stocking up. But then there was a decline in the caustic soda market, and the weakening of alumina prices in February affected the market. Aluminum oxide enterprises in the main production area lowered the local liquid alkali procurement prices for six consecutive times within the month, resulting in a decline in the market. In March, the market for caustic soda first suppressed and then rose, with fundamentals boosting the market. Most companies' parking and maintenance led to a decrease in caustic soda production, and market prices rebounded slightly.
Entering the second quarter, the caustic soda market rose first and then fell in April, and maintenance enterprises gradually resumed production. Downstream demand follow-up was insufficient, and the shipment situation of enterprises was poor. The market transaction range shifted downward. In June, the price of caustic soda decreased narrowly, resulting in a reduction in downstream alumina profits and lower than expected terminal demand. Coupled with the poor performance of the liquid chlorine market, the price of caustic soda achieved a double decline.
Analyzing the caustic soda market in the first half of the year, the supply-demand contradiction was an important factor causing the market downturn. From 2018 to 2021, the growth rate of caustic soda production capacity was significant. As of the end of last year, the self-sufficiency rate of domestic caustic soda has reached 109%. This year, there has been a significant increase in the production capacity of caustic soda, reaching a total of 1.24 million tons. Overall, the increase in caustic soda production capacity in China has a significant negative impact on prices. In addition, the overall operating level of most chlor alkali enterprises is relatively high, which also has a negative impact on the market.
Caustic soda has become an industry with overcapacity. The government strictly restricts the addition of new caustic soda production capacity, encourages the gradual elimination of outdated production capacity, and encourages and promotes the development of advanced production capacity. Therefore, the growth rate of caustic soda production capacity in China is gradually slowing down.
In the second half of the year, it is expected that 3.025 million tons of planned new production will be put into production. Although it is not expected to be fully launched based on market conditions, it still has a significant negative impact on the market, bringing greater pressure to the liquid alkali market, with some regions having a significant impact. In short, it is expected that the supply side will increase significantly compared to the first half of the year, which is bearish for the market.
In addition, China has always been a Balance of trade of caustic soda. Due to the continuous downturn in domestic caustic soda prices, chlor alkali enterprises are actively exporting in order to ease the pressure on domestic sales. But entering 2023, the export of caustic soda shows a monthly downward trend. This is because there is still no significant positive support for the demand for liquid alkali in the international market, coupled with the impact of low-priced supply in India, the Middle East, and other places, the counteroffer price in the external market is relatively low, and export orders are limited.
In the second half of the year, there was relatively little maintenance news in Asia, and Northeast Asia had sufficient sources of export goods. The international downstream market and traders had a strong wait-and-see attitude towards the future market, and it is expected that there will be no significant improvement in the export signing situation.
From the demand side, some downstream industries such as pulp and new energy also have new production capacity waiting to be put into production. However, the raw material consumption is low and the volume is small, and the upstream demand increment is limited. Moreover, most downstream industries have not optimistic expectations for profitability and their own demand in the second half of the year, and production enthusiasm may be difficult to significantly improve. The overall demand performance is weak, maintaining rigid demand support for caustic soda, and maintaining strict control over the purchase price of liquid alkali.
Overall, it is expected that the supply of liquid alkali will increase in the second half of the year, and downstream demand expectations are not optimistic, making it difficult to straighten out the supply-demand contradiction. If there is no sudden positive boost, there is still downward pressure on prices.
Caustic soda is located in the middle reaches of the chlor alkali industry chain. Its upstream is mainly raw salt, and its downstream can be widely used in industries such as alumina, chemical industry, papermaking, printing and dyeing, petroleum, light industry, etc. It is the main product of chlor alkali enterprises. This year, the profit margin of chlor alkali enterprises has narrowed, especially in the second quarter when they were struggling near the cost line. In June, they improved slightly, and the current gross profit margin is over 190 yuan.
From the demand side, there has been no significant improvement in demand in various downstream fields of caustic soda this year, and the papermaking, printing and dyeing and other industries have maintained a normal and stable level. The profitability of alumina, printing and dyeing, new energy, and some chemical products this year is average, and the production enthusiasm of enterprises is not high. They often maintain strict demand for caustic soda and strictly control procurement prices, which has a negative impact on caustic soda prices.
This year, with the recovery of logistics and transportation efficiency, the caustic soda market has returned to its true supply and demand state. In the context of increasing production capacity, normal logistics and transportation, and high operating rates of chlor alkali plants, the supply of caustic soda products has increased year-on-year, leading to increased supply-demand conflicts and price fluctuations.
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