Capacity expansion coupled with falling production costs will exert a depressing effect on soda ash prices. Under the expectation of loose supply and demand, the price center of soda ash will continue to move closer to low-cost production facilities.

Recently, the price of the main contract of soda ash futures hit a new low. The state of high supply and high inventory of soda ash has lasted for a long time. Coal prices have fallen from their highs. Although many soda ash enterprises are already in a loss state, the decline in costs has made manufacturers less willing to cut production. In addition, there are still expectations for production cuts in downstream float glass and photovoltaic glass, and the industrial chain still has negative feedback on soda ash. In the medium and long term, the supply and demand of soda ash may continue to weaken, and it is difficult to find a price bottom.

On the supply side, some soda ash enterprises have entered a loss-making stage, but the loss period has not been long. Initial losses may lead to reduced load operation of some high-cost units, and it will take a long time for capacity elimination. Seasonally, the soda ash industry has a tradition of centralized maintenance in summer in previous years, but some enterprises completed annual maintenance ahead of schedule in the second quarter of this year, so the support of summer supply reduction for prices may weaken. Although no new soda ash units will be put into operation in the second half of this year, next year will see a large number of new capacity projects, and most of the newly commissioned capacity are low-cost combined alkali and natural alkali units. Capacity expansion coupled with the decline in production costs will suppress soda ash prices.

On the demand side, the relatively stable demand for light soda and export demand gives soda ash demand continued resilience. The downstream float glass and photovoltaic glass of heavy soda still have expectations of production reduction, and heavy soda demand may decline in the future. Since the real estate industry entered a downward cycle, float glass enterprises have been continuously in deficit, supply has dropped to a historical low in the same period, and there is still an expectation of mandatory production reduction driven by policies in the third quarter. The demand for soda ash from photovoltaic glass has also dropped significantly. Due to the front-loaded photovoltaic installation demand in the first half of the year, the demand for photovoltaic glass has declined significantly after the second quarter, and inventories have accumulated to a historical high. Against the backdrop of industry losses, the daily melting capacity of photovoltaic glass has fallen from a high of nearly 90,000 tons to 73,000 tons. The expansion of photovoltaic glass production reduction has a certain drag on the rigid demand for soda ash.

From the perspective of costs and profits, changes in soda ash costs mainly stem from raw salt and coal. In the first half of the year, raw salt prices fluctuated slightly, and although coal prices rose significantly, their impact on the soda ash market was more reflected in the emotional fluctuations caused by the initial stage of the price increase. There are large differences in the costs of various soda ash production processes, and the enterprises currently in a loss-making state are mainly those using the ammonia-soda process with high costs. In recent years, with the addition of new production capacity with lower production costs from other processes, the production capacity share of ammonia-soda process enterprises has dropped to 30%. The cost reference value of combined alkali and natural alkali plants with relatively low production costs has been further improved. When production profits are positive, low-cost plants have a weak willingness to support prices, which may drive the overall industry prices to continue declining. For futures forward contracts, this means that the pricing logic has changed. Under the expectation of loose supply and demand, the central level of soda ash prices will continue to approach that of low-cost plants.

There are differences but also a certain correlation between the supply and demand sides of glass and soda ash. From a cost perspective, due to the restrictions of environmental protection policies, the glass industry is currently in a transition stage from low-cost production processes to higher-cost ones, while the soda ash industry is in a stage where the average industry cost is declining, and there are differences in their cost expectations. From a supply and demand perspective, the glass industry is in a production reduction cycle. Glass production reduction means weaker demand for soda ash, while soda ash is still in a capacity expansion cycle, and there are also differences in their supply and demand expectations. Therefore, the author believes that there are certain arbitrage opportunities when the price spread between glass and soda ash widens.

In summary, the current inventory of soda ash remains high. As rigid demand weakens in the second half of the year, the supply and demand situation will become looser. Moreover, the large-scale production expansion cycle in the soda ash industry has not yet ended, and the prices of forward contracts will continue to be suppressed by the supply side. The driving force for a rebound will mostly stem from macro sentiment or plant shutdowns by manufacturers.

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