China is a net exporter of Caustic Soda, and overall, the dependence on caustic soda imports and exports is not high. However, compared to exports, the import volume is too small, so the market focuses more on the export side. This article summarizes the noteworthy varieties in China's caustic soda industry chain and their impact on the price of caustic soda from the perspective of import and export.
[Difficulty in forming effective cost drivers for caustic soda prices with raw salt]
The caustic soda industry chain presents a flattened feature, with a shorter chain length and a rich coverage of varieties at the same level. As a salt chemical product, caustic soda is mainly produced by electrolysis of saturated salt water. The production cost includes electricity, labor, raw salt, etc. Among them, electricity cost accounts for a relatively large proportion, nearly 60%. Although China has imported some electric coal, there is a significant error in calculating the specific electricity cost. The electricity cost is estimated based on the industrial electricity quotation and specific research of some self owned power plants.
The main raw material cost of caustic soda is raw salt. China is the country with the largest production capacity and output of raw salt in the world. In recent years, the supply capacity and development level of China's salt industry have been stable. According to data from the China Salt Industry Association, as of the end of 2023, China's raw salt production capacity has exceeded 120 million tons, with a production capacity of 97 million tons, and an equivalent capacity utilization rate of 80%. At the same time, China is also a net importer of raw salt, with an average annual import volume of over 9 million tons from 2022 to 2023.
Based on the domestic raw salt production capacity, production pattern, and import volume, there is no obvious shortage of raw salt supply in China, and the current capacity utilization rate is around 80%, with some elasticity; However, the import dependence during the period of high import volume from 2022 to 2023 was only 8% to 9%, so it is difficult to say that the shortage of domestic raw salt supply has led to the situation of filling the import gap. The main factor is that coastal areas, as one of the main consumption areas of raw salt, have certain economic advantages in estimating the cost of imported salt based on comprehensive logistics and warehousing. The data shows that the total amount of imported salt in China in 2023 was 9.085 million tons, with an average import price of 44.76 US dollars per ton. According to the average exchange rate of the US dollar during the same period, the import to port price is 356 yuan/ton, and the average domestic delivery price is 394 yuan/ton. In addition, due to the existence of high yield periods and "spring harvest and autumn harvest", the import volume will also be affected by the low and peak supply seasons.
Except for the significant price fluctuations caused by the "dual control of energy consumption" in 2021, the price center for delivering raw salt from East China is generally between 250-450 yuan/ton. From the perspective of caustic soda cost, the consumption of raw salt per ton of caustic soda is 1.4-1.6 tons, which translates to a raw salt cost of 350-700 yuan/ton. Due to the limited bargaining power of raw salt itself, it is difficult to form an effective cost drive for caustic soda prices in the context of low price fluctuations and frequency.
Overall, the dependence on imports and exports of caustic soda is not high
China is a net exporter of caustic soda, and overall, the dependence on imports and exports is not high. For the domestic market, imports and exports are only one of the ways to balance supply and demand. In 2022, the export volume will only gradually increase the dependence on exports to 8%. Compared to exports, the import volume is too small, so the market pays more attention to the export side.
Looking back at the export situation of caustic soda in recent years, the export volume decreased from 2017 to 2019. Firstly, the domestic prices were at a relatively high level, and the export prices were not attractive to Chinese chlor alkali enterprises; Secondly, weak external demand resulted in a year-on-year decrease in export orders; Thirdly, local regions in China have limited production, resulting in a decrease in the supply of liquid alkali in the market. Most chlor alkali enterprises are mainly focused on meeting domestic demand, and their export sources have decreased. There are many reasons for the surge in export volume in 2022: on the one hand, overseas energy prices have raised production costs, and China's caustic soda has a price advantage, which has increased the export enthusiasm of Chinese chlor alkali enterprises; On the other hand, with the strengthening of external demand, Indonesia's local alumina industry has invested millions of tons of alumina production capacity, providing support for China's caustic soda export volume. The export market is lukewarm in 2023, but domestic chlor alkali production capacity continues to increase. The release of new coastal production capacity will affect subsequent domestic caustic soda exports, and competition pressure in overseas markets will increase. From the supply side perspective, against the backdrop of sustained low overseas caustic soda prices, China's caustic soda exports have significantly decreased in 2023; Some manufacturers have also reduced production due to continuous losses, and in the absence of export price advantages, the export supply of various enterprises has decreased.
From the perspective of overseas markets, with the easing trend of the global energy crisis, there is an expectation that chlor alkali plants will gradually resume stable production. From the perspective of the main export destinations for caustic soda in China in 2023, except for Australia, which accounts for more than half of the total, the other export destinations are mainly in Southeast Asia and Africa. Due to India's shift from being an inflow country to an outflow country for caustic soda, it is expected to seize the Southeast Asian market in 2024, which may divert some of China's export demand. Therefore, China's caustic soda export volume is expected to decline year-on-year. Considering the limited downstream growth rate of new caustic soda plants in China, it is still necessary to maintain a high export volume to regulate supply and demand. Therefore, it is possible to maintain an export share of 2 million tons.
In addition to the impact of export volume on price fluctuations, there is a concentration difference in caustic soda, so the price difference between high and low concentration caustic soda is also more concerned by the market. In addition, due to the high moisture content of 32% liquid alkali, the storage and logistics costs for dry tons of caustic soda are higher. Therefore, the export price index of caustic soda mainly focuses on 50% liquid alkali. In the first quarter, overseas caustic soda prices were strong, with Southeast Asian CFR prices rising from $400/ton in early February to $495/ton, an increase of nearly 25%. In the initial stage of the rise in the Asian market, 50% of Shandong's liquid alkali experienced significant price fluctuations driven by exports; However, due to the fact that 32% of liquid alkali mainly flows within the production and sales areas and surrounding provinces, some enterprises have stable supply to downstream and traders, resulting in relatively slow price fluctuations. At this stage, the price difference of 32% -50% liquid alkali in Shandong Province has significantly strengthened, reaching a peak of 500 yuan/ton. Due to the possibility of a certain degree of processing substitution between the two, it is reasonable to estimate a processing cost of around 100 yuan/ton based on a 32% -50% liquid alkali basis difference of 80 yuan/ton. Therefore, the sustained strong 50% liquid alkali will drive the price difference of 32% liquid alkali to follow the trend.
[Downstream core industries have certain disturbances to the export of caustic soda]
The downstream of caustic soda involves a wide range of fields, including alumina, printing and dyeing chemical fibers, papermaking, new energy precursors, military industry, Water Treatment, etc. Due to the fact that the consumption and recovery rate of caustic soda in the production process of the paper industry are developing towards a "green" direction, and caustic soda as an auxiliary agent has little impact on the cost side of the paper industry, papermaking is usually difficult to serve as the main driver of caustic soda demand or transactions. The production capacity of printing and dyeing chemical fibers has not changed much, making it difficult to provide a significant increase in demand for caustic soda. However, with the end of overseas destocking and the improvement of domestic textile exports, it is expected to provide certain support for the demand side of caustic soda. The alumina industry, due to its high demand proportion (over 30%) and high industry concentration, has strong regional bargaining power and has become one of the most important influencing factors downstream of caustic soda.
According to the analysis of the downstream industry chain of caustic soda, core industries such as alumina and printing and dyeing chemical fibers have certain constraints or growth points on the import and export end, which disturb the overall production, cost and profit of the industry and affect the demand for caustic soda.
Aluminum oxide: The supply of bauxite remains one of the main factors restricting aluminum oxide production
China's alumina production is mainly based on the Bayer process. From the perspective of the consumption of caustic soda per ton of alumina, there is a difference between imported and domestic bauxite, with an import volume of about 0.1 tons and a domestic volume of about 0.2 tons. Due to the import dependence of bauxite in China exceeding 60%, it is estimated that the consumption per ton is around 0.15 tons, and caustic soda accounts for 16% -20% of the alumina production cost. In addition to the direct impact of alumina production on the demand for caustic soda, the profit level of alumina also affects the price of caustic soda from a cost perspective.
Aluminum oxide is currently facing a situation where there are constraints on the top and a top. Due to the downstream electrolytic aluminum production capacity approaching the red line of 45 million tons, subsequent capacity increases are mostly implemented in the form of domestic new project capacity replacement. In addition, the current utilization rate of electrolytic aluminum production capacity has been maintained at a high level of 95%, resulting in insufficient space above the demand for alumina due to the production limit. On the upstream side, due to a shortage of supply and a large amount of imported raw materials from overseas, China's dependence on foreign bauxite has remained at 50-70% since 2020, mainly from Guinea and Australia.
Imported bauxite has become one of the main factors affecting the supply and price expectations of alumina.
In mid December 2023, due to the explosion of Guinea's oil depot, the market was concerned about a reduction in the shipment volume of Guinea's bauxite. Domestic alumina futures hit the limit up for the first time since listing, and the caustic soda market also rose on the same day, driven by downstream cost valuation expectations. The main contract briefly rose to the first line of 2970 yuan/ton; Afterwards, the price center of alumina significantly shifted upwards, and under the drive of profit, the production enthusiasm of domestic alumina enterprises increased. However, due to issues such as raw material supply, the year-on-year start of production was lower. Overall, to determine the impact of phased alumina on the demand for caustic soda, attention should be paid to whether the problem of insufficient supply of alumina raw materials can be effectively alleviated, and imported bauxite plays an important role in it.
Printing and Dyeing Chemical Fiber: Overseas Clearing of Inventory and Strong Export Provide Support for caustic soda Demand Expectations
From the perspective of domestic production of printed and dyed fabrics and viscose short fibers, there has been a narrow fluctuation pattern in the past five years, with production centers of 55 billion meters and 4 million tons respectively. The fluctuation in production is mainly caused by insufficient demand in recent years. Whether the textile industry can maintain the momentum of output recovery is still one of the main variables on the demand side of caustic soda in 2024. At present, the export of textile and clothing industry has significantly improved year-on-year in the first two months of 2024. In February, the export of textile yarn, fabrics, clothing, and clothing items increased by 31.9% and 22.2% year-on-year, respectively. The main reason for the strengthening of exports is that overseas brands are already in the bottom stage of clearing inventory. According to inventory data from US clothing and fabric wholesalers, the pressure has eased since September 2023.Despite the current feedback from the textile industry that there are still insufficient downstream orders during the "Golden Three Silver Four" peak season, and domestic demand is showing signs of fatigue, the bright export side still boosts the production enthusiasm of the textile industry, which can provide "optimistic" support for the demand for caustic soda.
