Soda ash: linkage between futures and cash, bipolar swing
2023/8/29
On the contrary, from April to May this year, the soda ash market experienced a round of thousand point decline driven by expectations of new production capacity and a significant decline in prices in the industry. The significant fluctuations in the two rounds of the soda ash market in the short term have attracted industry attention.
Real end driven current market
Since the listing of soda ash varieties, market participation has continued to increase, with rapid integration of varieties and futures, and strengthened spot financial attributes. The logic behind this is that although the market price fluctuates actively, it is difficult for the industry to grasp the driving forces behind the significant fluctuations, leading to the increasingly prominent feature of the spot industry's mentality being easily led by market sentiment. The traditional rules of the spot industry have been repeatedly overturned, and prices have risen and fallen excessively before returning to fundamentals for correction, resulting in a significant amplification of price fluctuations.
The driving factors of market operation can be divided into two parts: the current reality end and the high certainty expected end.
The main factor driving the previous round of decline was the decrease in terminal procurement, and alkali plants continued to actively reduce prices and offer profits in order to obtain order fulfillment profits. Another factor is the expectation of reduced maintenance volume and tight spot supply and demand in the market during the summer. However, in this round of upward trend, the implementation of summer maintenance has caused a real supply and demand gap, and the resumption of procurement at the terminal combined with the stabilization of spot prices is beneficial for the market. At the same time, the increase in production capacity of Alxa has a negative impact on market sentiment, which has become the core logic of this round of bearish positions. But both rounds of the market chose to be based on the price strategy direction of alkali plants.
In the previous round of market decline, terminal purchasing willingness weakened, while some upstream manufacturers formulated price strategies based on order days, which is more likely to promote a negative cycle of emotions. The emotional impact of industry capacity change nodes combined with futures trends makes the correlation between spot prices and inventory levels susceptible to short-term stripping, resulting in a situation where upstream inventory accumulation is limited but prices collapse. However, the decline in prices and the decline in industry sentiment cannot resolve the risk of supply and demand gaps. During this round of upward trend, the terminal has already lost the space to suppress raw material procurement in the early stage, and with low industry inventory, it is more likely to trample on the collective return of demand procurement, forming a tight supply situation.
Passive "price increases are imminent
At the node of supply side pattern transformation, both upstream pricing strategies and terminal procurement strategies have distinct "passive" characteristics, with weak willingness to hold goods both upstream and downstream. The procurement of the terminal is a "passive" replenishment after it is difficult to continue suppressing, while the upstream price increase is a "passive" increase under full orders and tight supply.
The market price of soda ash fluctuated in a range in June this year, and was still in a period of volatility towards the end of June, with no weakness in prices. Although the effect of the alkali factory's price hike was never as expected, the relatively positive sentiment continued until July. After the maintenance expectations were gradually fulfilled, the industry also had more reasons to believe that price increases were coming soon.
At present, the logic of soda ash market still revolves around the reality of near end tightening and far end excess expectations. On the one hand, the situation of tight spot supply and demand is still ongoing. In addition to regular maintenance plans, there are occasional reports of sudden load reductions and temporary shutdowns of individual devices in the market. On the other hand, Alxa's new device products are about to enter the market. After experiencing a significant increase in market prices, the two sides were once again divided. The current market trend may still be driven by the trend of spot quotes from alkali plants. Under the calculation of the balance sheet, the node with the most tense spot supply and demand will appear from mid to late August to the end of the month, and the specific time will be affected by temporary and sudden situations of device operation and the process of new production capacity climbing.
In the short term, the core driving force in the current market is the alkali factory's price adjustment strategy, which continues to be driven by the shortage of spot goods. The industry is currently in a special period where futures trends have an impact on the end storage of spot goods. Therefore, it is difficult to position spot prices solely based on inventory pressure levels, just like it is difficult to find a bottom in the price decline process from April to May. The height of the current "last dance" is also difficult to judge. A better way to operate is to follow the driving force and explore the value driven by the market.
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