At present, the domestic spot price of soda ash is in a falling stage that has lasted for nearly a year, which is the lowest in 10 years. However, the downstream flat glass price is constantly regaining lost ground driven by the rapid reduction of large inventory, and the industry's profits are also quickly repaired. With the advent of the rainy season, on the one hand, terminal demand is facing adjustments, on the other hand, the soda ash industry is very expensive, indicating that the upstream of the industry strongly expects the transmission of profits. In this context, has the bottom of soda ash prices really come?

　　 The essence of upstream and downstream variety arbitrage lies in the direction of profit transmission

　　 As the upstream and downstream of the industry, the core factor of the glass and soda arbitrage order changes is the profit of flat glass. In the past 10 years, the correlation coefficient between the price of flat glass and its profit has been 0.92, and the changes between the spot price of heavy alkali and the profit of flat glass have also shown obvious regularity. Before 2015, the profit of flat glass, the price of heavy alkali, and the national flat glass price index generally rose and fell in the same large range. This is especially obvious at the stage of rapid deterioration of flat glass profits. On the other hand, in the case of profit restoration at this stage, the price of heavy alkali is more in a narrowly rising triangle. After 2015, the previous rules began to change, and the negative correlation between the profit of flat glass and the price of heavy alkali became more and more significant, especially since 2017, the five consecutive inverted V-shaped highs of the price of heavy alkali are just right. Corresponding to the 5 low points of the profit change of flat glass, the overall negative correlation fitting degree is above -0.95.

　　 After the Spring Festival, the price of soda ash continued to fall under the background of rapidly recovering production capacity and historically high inventory and weak downstream demand for light and heavy alkali. At present, the quotations for heavy soda from mainstream consumption areas are basically near the theoretical break-even line of soda plants in North and Central China. Excluding the Northwest region and the trona process plants with a very small production capacity, there are also theoretically estimated profits. Production enterprises are basically below the theoretical profit and loss point. In contrast, the glass industry was affected by public health incidents. The industry’s inventory exceeded 70 million heavy containers, an increase of more than 75% from the 5-year average. However, the demand recovery rate exceeded expectations. The weekly apparent demand once exceeded 20 million heavy containers. In the low-volume stage, the higher production-sales rate can quickly digest inventory. Under this circumstance, the profits of soda ash were forced to compress, and the profits of glass were restored. The profits of coal-fired lines in North China are currently maintained at around 400 yuan/ton, which is at the top of the historical fluctuation range.

　　The mismatch of supply and demand is the current challenge facing the soda ash industry

　　 The production capacity of the soda ash industry resumed its low-speed expansion model after 2016, but the growth rate suddenly broke out in 2019, with an additional capacity of 2.6 million tons, an increase of 8.4%. The glass industry’s output has declined since 2019 under the dual pressures of supply-side reforms and environmental protection policies, but the cold repair production lines have also been increasing since the year; after subtracting cold repair production and new production capacity, a total of 33 million boxes have been reduced as of May. The production capacity corresponds to a reduction in demand for heavy alkali by approximately 350,000 tons. In terms of output, the national soda ash output from January to April was 8.968 million tons, an increase of 3.84% year-on-year; the output of flat glass was 3.04.41 million heavy boxes, a year-on-year decrease of 0.3%, and the April output fell by 4.52% from the previous month. At present, after nearly 20 weeks of decline in the daily production volume of the glass industry, the industry maintains a daily output of less than 90,000 boxes, the lowest in three years. In terms of light alkali, the output of downstream alumina has both declined year-on-year during the year; in terms of synthetic detergents, due to the erosion of the market share of new washing products in recent years, the output has fallen by about 17% compared with 2018; and other industries such as daily glass and printing and dyeing have also Affected by the new crown pneumonia epidemic, demand in overseas markets has dropped sharply, and industry operating rates are low. Therefore, the current contradiction between supply and demand in the soda ash industry is more prominent.

　　 In the face of continuously falling prices of soda ash and erosion of profits, the industry has recently begun to hold inter-industry conferences to try to force profit transmission through price-high sales and restore spot prices. Generally speaking, the profit transmission of upstream and downstream industries is basically accomplished by expanding production, and changing the status quo of supply and demand is the driving force. The current operating rate of the soda ash industry has fallen to 66.8% per month, down 20% year-on-year. The weekly output is at a new low during the year, and the industry inventory turning point signal has also appeared. However, even under the stimulation of high gross profit margin, the output of downstream float glass has not been able to enter the expansion stage. Therefore, the gears of profit transmission have not been perfectly matched for the time being. Without changing the mismatch of supply and demand, the price-setting sales strategy has little effect. However, the soda ash industry has no plans for capacity expansion during the year, while the potential resumption of production capacity in the glass industry has reached 7.8%. Currently, the planned potential increase in production capacity in the second half of the year is about 3.7 million tons, corresponding to nearly 800,000 tons of heavy alkali demand.

　　 In general, the strong situation of the glass market has not changed, and there is still room for further expansion of profits. In the future, we need to pay attention to the realization of the release of glass production capacity. And once glass manufacturers have concentrated stock replenishment, the entire industry chain will enter the replenishment stage.