recent news that yuanxing trona project will be put into production ahead of schedule has a significant impact on the price of soda ash futures, and the price difference of 5-9 has risen to a high of 540 yuan/ton. The positive logic of the soda ash market in the past two months is that the short-term soda ash supply is tight, the inventory is low and is expected to continue until the first half of 2023, but there will be a surplus of soda ash in the second half of 2023.
As the price difference of 5-9 rises to a high of 540 yuan/ton, we believe that the space of 5-9 is very limited. Under the influence of market sentiment, the short-term 5-9 price difference may rise to 600 yuan/ton. Looking forward to further clarification of the progress of yuanxing Trona Project, glass enterprises will reduce soda ash inventory due to the early commissioning of the project or the valuation repair of the September contract due to normal commissioning will push the 5-9 price difference down. It is suggested that the early positive strategy can stop profit one after another, and non-participants can try to carry out reverse operation with 560 yuan/ton, stop loss of 620 yuan/ton and stop profit of 400 yuan/ton.
Recently, the monthly price difference of soda ash has fluctuated greatly, and the pattern of near strength and far weakness is obvious. The price difference of 1-5 and 5-9 contracts has expanded sharply, especially the price difference of 5-9 has risen to around 540 yuan/ton, a new high since the listing of soda ash futures. What is the main logic of the recent soda ash market? Has the 5-9 spread of 540 gone extreme?
First, put into production ahead of schedule? The first phase of the project is planned to be ignited in March 2023, the first production line will be commissioned in May, the second production line will be commissioned in June, and the first phase of the project will be put into operation by the end of June. All participating units should unite and work hard to ensure the smooth completion of each device node as planned. At noon on January 10, the news spread widely in social media, and the bearish sentiment in the market was fermenting. After the market opened on the afternoon of the 10th, the soda ash futures far-month contract fell sharply, with SA2309 falling by 4.50% and 2310 falling by 4. Unlike the far-month contract, the soda ash near-month contract showed obvious resilience. SA2305, the main contract, fell only 0 on the same day.
Unlike yuanxing's previous announcement of "commissioning production in batches from June to September", yuanxing Energy's proposal of "putting the first phase into operation at the end of June" is nearly three months ahead of the original plan, which may increase domestic soda ash production by 350000 to 450000 tons in 2023. Under the impact of the news, the price difference between soda ash 5 and 9 was further expanded.
Specifically, as of December 2022, the total production capacity of soda ash in China was 32.43 million tons, of which the effective production capacity was 31.18 million tons. The planned production capacity of Phase I of yuanxing Energy Alashan Trona Project is 5 million tons/year, accounting for 15% of the total domestic soda ash production capacity. The planned production capacity of Phase II is 2.8 million tons/year, accounting for about 8% of the total domestic soda ash production capacity. If yuanxing reaches the production capacity on schedule or ahead of schedule, the domestic soda ash supply and demand pattern will shift from self-tightening balance to easing, and the pressure of periodic excess supply will lead to price decline.
As early as March 2019, Yingen Mining, a subsidiary of yuanxing Energy, obtained the Mineral Resources Exploration License issued by the Natural Resources Bureau of Alashan League of Inner Mongolia Autonomous Region through listing and bidding. In June 2021, Yingen Mining obtained a mining license with a validity period of 26 years from June 9, 2021 to June 9, 2047. According to the reserve verification report filed by the Natural Resources Department of Inner Mongolia Autonomous Region, the total ore-bearing area of Tamusu Trona Mine in Alashan Right Banner is 42.1 square kilometers, with 1.078 billion tons of solid trona ore, 709 million tons of minerals and an average grade of 65. The Alashan Trona Project started on April 7, 2021 and was originally planned to be completed by the end of 2022. It was postponed to be completed and put into production in mid-2023. yuanxing Energy currently holds a 60% stake in Yingen Mining.
In addition to the pressure of excess supply, the production cost of yuanxing Energy's trona project is very low, and the pricing power and trade flow of domestic soda ash will change significantly after the production capacity is put into operation. At present, domestic soda ash production is dominated by ammonia soda and combined soda process, and the proportion of trona production capacity is only 5%. After the Alashan trona project is put into operation, the proportion of trona production capacity will rise to 18%. At that time, yuanxing Energy's trona will take the initiative to reduce its sales price in order to gain more market share, while other enterprises may be forced to lower their prices. With the production cost of more than 600 per ton, the advance or delay of the production schedule of yuanxing Energy will have a significant impact on the domestic soda ash price.
Soda ash contracts are strong in recent months, mainly due to the tight balance between supply and demand of soda ash, the low inventory, and the contradiction between supply and demand of soda ash in the first half of 2023 is still difficult to alleviate. In the first half of the year, the production capacity of soda ash increased less, while the demand will continue to increase, and the price in the first quarter is easy to rise and difficult to fall. After the destocking of nearly 2 million tons in 2022, the stable production capacity of float glass and the increase in production capacity of photovoltaic glass will drive the demand for soda ash to continue to increase, and the domestic inventory will drop to a lower level in the first half of 2023, which will support the price more strongly. In addition to the good fundamentals, the recent domestic economic recovery and the frequent good policies in the real estate industry have also boosted the price of soda ash.
Firstly, according to the previous production plan of yuanxing, 5 million tons of production capacity will be put into production of 150, 150, 100 and 1 million tons respectively from June to September. This time, it is proposed that the project should be put into operation in June ahead of schedule. Is the progress of the project allowed? Can funds, personnel and supporting facilities follow up? Secondly, the Alxa trona project has obtained the Yellow River water intake index of 3.5 million m ³/year, which can meet the production of about 2 million tons/year. The management of yuanxing said that the remaining water index will be implemented in stages, and it is expected that the index of 6-7 million m ³/year will be obtained in May to meet the production demand of the first phase. Whether water indicators can be obtained as scheduled is still unknown. Thirdly, from the spot point of view, the total inventory of soda ash in China is nearly 1.8 million tons, of which only 270000 tons are in the upstream alkali plants, and more than 1 million tons are in the float and photovoltaic glass enterprises. At present, photovoltaic glass enterprises continue to expand production capacity. In order to maintain the safety of raw materials, float and photovoltaic glass enterprises take the initiative to increase the inventory of soda ash raw materials. The latest available days of soda ash are about 24 days. According to the industry practice before the expansion of photovoltaic glass production capacity, the safety stock of raw materials in glass enterprises is about 10-15 days. If the later trona project is confirmed to be put into production in May and June, it is a more favorable choice for glass enterprises to reduce the dilution cost of soda ash inventory. Glass enterprises may take the initiative to reduce the inventory of raw materials from April, which will increase the supply of 300000-400000 tons in the market. In May, the pressure of spot price decline will be greater, and the probability of price difference narrowing will be greater. If the trona project can not be put into production ahead of schedule in April, it is more advantageous for glass enterprises to choose not to reduce the inventory ahead of schedule, then there will be some room for repair in the September contract, and the price difference between 5 and 9 may be stable or rise or fall slightly. The other two scenarios are unlikely to occur and will not be discussed here. On the whole, the current 5-9 price difference of 540 yuan/ton has fully accounted for the impact of yuanxing's early production on spot prices. We believe that there is little room for the 5-9 spread to continue to rise, and there is some room for it to fall back before May.
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