SunSirs: Caustic Soda: Fundamental Pressures Persist, Futures Price Rally Unlikely to Sustain

On March 5, caustic soda futures surged significantly, with the main 05 contract hitting the daily limit up in the afternoon session, closing at 2,274 yuan per ton. During the night session, the main 05 contract rose over 6% at one point. On March 6, domestic commodity futures opened with caustic soda gaining more than 5% again.

I. Increased International Market Uncertainty, but Limited Actual Impact

Since the outbreak of the U.S.-Israel-Iran conflict, market sentiment has been driven by multiple factors: concerns over temporary global caustic soda supply disruptions or localized supply shocks, rising energy costs driving up production expenses, and widening domestic-international price differentials boosting China's caustic soda exports. These factors have collectively fueled positive sentiment in the futures market.

Soda ash imports and exports account for a relatively small proportion of its overall supply and demand. In 2025, China's exports represented only 9.37% of its total domestic production. The extent of subsequent geopolitical impacts remains highly uncertain, while the fundamental contradiction of oversupply in the domestic market has not undergone substantive change.

II. Domestic Soda Ash Supply and Demand Pressures Remain Elevated, Making Sustained Price Increases Unlikely

The weak supply-demand dynamics in China's caustic soda market are unlikely to reverse rapidly. In 2025, total domestic production capacity reached 49.85 million tons, with actual output at 43.7552 million tons. This contrasts sharply with annual consumption of only 39.2256 million tons, resulting in a significant production-demand gap of 4.53 million tons. While exports alleviate some pressure, considering inventory levels across the supply chain, the overall market remains oversupplied.

Since 2026, the caustic soda industry's operating rates have remained persistently high, reaching their highest level in nearly six years between mid-January and mid-February. Although operating rates dipped during the Spring Festival period, sustained improvement in downstream demand for liquid chlorine—a key byproduct—has driven significant recent price increases for liquid chlorine. This, in turn, has further boosted operating rates in the caustic soda sector. According to Longzhong data, as of March 5, the caustic soda industry operating rate stood at 86.4%, up 1.5 percentage points from the previous week. Weekly production reached 855,000 tons, a 1.79% increase week-on-week. Additionally, inventory at domestic caustic soda producers with capacities exceeding 200,000 tons reached 555,700 tons (wet tons) this week, up 2.73% week-on-week and 15.54% year-on-year. Supply from the upstream and midstream caustic soda sectors continues to expand, maintaining ample spot market availability.

Demand support for caustic soda has been relatively weak recently. On one hand, production levels in the alumina industry—the largest downstream sector for caustic soda—have been declining since mid-January. As of March 5, the industry's operating rate had fallen to 83.1%, down 2.73 percentage points from its mid-January peak. On the other hand, post-Spring Festival demand recovery has been sluggish, with overall liquid caustic soda transactions in Shandong remaining subdued recently, indicating insufficient demand support.

Amidst this supply-increase-demand-decrease dynamic, caustic soda spot prices have shown weakness since March. As of March 5, prices for 32% liquid caustic soda in Shandong, Xinjiang, and Zhejiang regions had decreased by CNY 2/wet ton, CNY 100/ton (dry basis), and CNY 10/wet ton respectively compared to the first working day of March, while prices in other major regions remained largely stable.

Overall, the strengthening of caustic soda futures has been primarily driven by multiple factors including rising overseas energy prices, disrupted logistics in the Middle East, and reduced chlor-alkali production in Southeast Asia. However, the impact of these factors on the domestic caustic soda market has largely been confined to sentiment fluctuations and future expectations. Currently, domestic caustic soda costs, transportation, and production show no significant changes, and the supply-demand balance remains relaxed. Consequently, both spot and futures prices lack sustained upward momentum.

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