Soda Industry Association requires soda enterprises to limit production to 30%

Yesterday, China Soda Industry Association issued the "Notice on Soda Production Limitation" (hereinafter referred to as "Notice"), which requires soda enterprises to reduce production by 30% from April 18th. Industry insiders said the move would push soda ash production by at least about 5.6 million tons. If production cuts can be effectively implemented, domestic supply and demand are expected to regain balance.

The "Notice" shows that since January this year, the sudden outbreak has caused serious impact on the industry's production. In the early stage of the epidemic, due to difficulties in transportation of raw materials and products, the industry experienced a backlog of products and the operating rate declined. Since March, as the epidemic has eased and transportation conditions have improved, the industry ’s operating rate has gradually picked up, and has now reached more than 85%. However, due to the postponement of downstream resumption of work, the Soda Ash demand has fallen sharply, leading to serious inventory backlogs, continued low prices, difficulty in fund recovery, and a substantial decline in efficiency, and many companies have suffered losses.

Under the above background, in order to stabilize the operation of the industry and reduce waste of resources, the association requires all soda ash production enterprises to reduce the load by 30% from April 18 to October 18 to reduce the production of soda ash and Ammonium Chloride, and reduce inventory To promote the clearing of excess capacity, resolve the imbalance between supply and demand, and return the industry to economic stability.

"Notice" also said that starting from May, the association will organize enterprises to conduct production reduction inspections.

According to monitoring data, the average domestic soda market price in East China on April 15 was about 1,510 CNY/ton, a 26.6% drop from the price at the beginning of 2018, and the overall price has reached the cost line. The light soda ash commodity index on April 14 was 80.17, a decrease of 31.98% from the highest point of 117.86 in the cycle.

According to the statistics of Longzhong Information, as of April 9th, the national soda ash inventory reached a new high of nearly 5 years, reaching 1.41 million tons, compared with only 254,000 tons in the same period last year.

"The current price correction of soda ash has been going on for a long time. The pressure on the company's inventory is high, and the price has dropped to a three-year low. Some manufacturers even fell below the cost line, and the overall situation is that the shipment is not smooth." Analyst Chen Shoujuan told reporters.

Chen Shoujuan believes that the association ’s production restriction notice will promote the reduction of soda ash production by at least about 5.6 million tons, or inject "heart-strengthening agents" into the market. Soda Ash prices may usher in a rebound, but it depends on the downstream market demand and the production operation of manufacturers ’equipment.