Soda Ash: Oversupply and High Inventory
Click:4    DateTime:Aug.26,2020

By Shi Hai

Capacity surged while demand limited

China’s soda ash capacity increased stably from 2017 to 2019 and reached 32.47 million t/a in 2019, coupling with a significant rise in production. However, the demand growth was limited, resulting in a huge surge in inventory.
From January to May 2020, China’s soda ash output was 11.6021 million tons, an increase of 632 100 tons from the 10.97 million tons in 2019, up 5.76%; of which, the output of light soda ash was 5.8487 million tons and the output of heavy soda ash 5.7534 million tons.
Due to the pandemic, the operating rate of soda ash manufacturers was once reduced from over 80% to 72.4% after the Spring Festival. Then, with the advancement of resumption of work and production, the utilization of soda ash plants recovered quickly. As of mid-to-late March, soda ash manufacturers' operating rate has returned to the previous level, and profits have also rebounded to a certain extent.
Although the prices of raw materials such as coal and raw salt have fallen slightly and the producing cost of soda ash has hence decreased, the downturn in demand has forced the soda ash prices to fall further than the decrease in raw materials. The average profit of the soda ash industry has further declined, and there have been more enterprises suffering from losses.

The maintenance season ends

June and July are usually the maintenance season for soda ash plants. This year, there have been a lot more units shut down for maintenance. The weekly output of soda ash dropped from nearly 580 kt to 440 kt from April to June, a decrease of 23%.
A total of 14 large and medium-sized producers have shut down their units for maintenance: Yunnan Yunwei's 200 kt/a line was halted on April 17, and the maintenance lasted for one month; Henan Junhua reduced the operating rate of its 600 kt/a unit down to 80%; Longshan Chemical’s 300 kt/a line was shut down for a 20-day maintenance on April 22; Hubei Shuanghuan’s 1.1 million t/a line was overhauled for 10 days on April 11 with daily output curtailed by 1 000 tons; Yaolong Chemical’s 400 kt/a unit was shut down for a 30-day maintenance on April 10; Jiangsu Jingshen’s 600 kt/a line’s operating rate was cut to 90%; Wucai Soda Industry’s 1.1 million t/a line was shut down for a 2-day maintenance on April 24; Huachang Chemical curtailed its 700 kt/a unit’s production for maintenance on April 20, and its daily production was reduced by 800 to 1 000 tons; CNSG Hong Sifang stopped its 350 kt/a line for maintenance at the end of May; Shilian Chemical’s 1.1 million t/a unit was overhauled for one month since May; Nanfang Soda Ash's 600 kt/a line was shut down on May 7 for maintenance for 13 days; Fengcheng Salt Chem’s 600 kt/a unit was shut down for maintenance in mid-May; Sanyou Chemical’s 2.3 million t/a line was overhauled for 7-9 days in June; and Huainan Debang’s 600 kt/a unit was overhauled on May 25 for 7 days .
Such maintenance helps relieve the oversupply pressure and boost market price trends. By the end of June or July, with the ending of the maintenance season, the operating rate of soda ash units will gradually increase. If the profits do not improve, manufacturers with Solvay process may continue to restrict production, meanwhile, the shortness of ammonium chloride will make it difficult for producers with Hou’s process to restrict production. In the second half of this year, the 300 kt/a line of Jindadi Phase IV and the 100 kt/a unit of Jiangxi Jinghao will be put into operation, and supply pressure will continue to increase.

Rising operating rates unfavorable for the market

In June, the overall operating rate of soda ash was maintained at 60% to 65%, of which the operating rate of Solvay process was about 64%, the operating rate of Hou’s process 60%, and the overall operating rate of 12 million-ton producers 64%. The spot prices remained stable, and there was no obvious change in the oversupply situation.
In July, the overall operating rate of the soda ash industry rose to 73.88%, of which the operating rate of Solvay process was 74.20%, the operating rate of Hou’s process 72.37%, and the overall operating rate of the 12 million-ton producers 81.47%. The supply pressure has become heavier, resulting in a bearish market sentiment.
Downstream glass processing factories and traders were actively purchasing, and manufacturers' inventories were shifting to market inventories. However, as the stocking is coming to an end, price increases have slowed down. There is still an upward room for spot prices.