Analysis of the current situation and trade characteristics of caustic soda industry

China's caustic soda industry has a development history of nearly a century, with output and consumption ranking first in the world, and export volume also ranking among the top in the world. As a fundamental chemical raw material and an important member of the "three acids and two alkalis", caustic soda is closely related to national economic life. Its upstream mainly includes the raw salt and power industries, while its downstream involves industries such as alumina, papermaking, textile printing and dyeing, detergents, pharmaceuticals, water treatment, petroleum, and food processing. Specifically, caustic soda is mainly used in the production of pulp, alumina, soap, dye, rayon, smelted metal, petroleum refining, cotton fabric finishing, purification of coal tar products, as well as water treatment, food processing, wood processing and machinery industry Chemical industry (production of borax, chromium salts, manganese salts, phosphates, production of polycarbonate, super absorbent polymers, zeolites, epoxy resins, sodium phosphate, sodium sulfite and a large amount of sodium salts, pharmaceuticals and organic intermediates, and regeneration of old rubber), etc. The upstream of caustic soda is relatively simple, while the consumer end is relatively complex. Its downstream is closely related to national life, covering various fields such as clothing, food, housing, and transportation. In the past decade, its demand has shown a stable growth trend.

Soda hydroxide, a inorganic compound, is a dangerous chemical. Its chemical formula is NaOH, also known as caustic soda and caustic soda. It is strongly alkaline, corrosive and hygroscopic. According to different forms, caustic soda can be divided into liquid caustic soda and solid caustic soda. Liquid caustic soda, abbreviated as liquid caustic soda, is usually a colorless and transparent liquid. According to the mass fraction of sodium hydroxide, liquid alkali can be divided into 30% liquid alkali, 32% liquid alkali, 42% liquid alkali, 45% liquid alkali, 48% liquid alkali, 49% liquid alkali, 50% liquid alkali, etc. Among them, 32% liquid alkali and 50% liquid alkali are the mainstream models in the market, and they are also the two delivery models for later listed caustic soda futures. Solid caustic soda, abbreviated as solid caustic soda, includes two forms: flake caustic soda and granular caustic soda. In China, flake caustic soda is the main form. According to the mass fraction of sodium hydroxide, solid alkali can be divided into 73% solid alkali, 95% solid alkali, 96% solid alkali, 99% solid alkali, 99.5% solid alkali, etc. Among them, 99% flake alkali is the mainstream model in the market.
Current situation of caustic soda industry
China's caustic soda production ranks first in the world, with a relatively concentrated supply and an overall trend of increasing year by year. According to data released by the China Chloroalkali Industry Association, from 2007 to 2022, China's caustic soda production capacity increased from 21.81 million tons to 46.58 million tons, a total increase of 24.77 million tons, an increase of 113.57%, and an average annual growth rate of about 5.19%. During this period, China's annual production of caustic soda increased by 21.32 million tons to 39.81 million tons, an increase of 121.21%, with an average annual growth rate of 5.84%. Except for the decrease in caustic soda production in 2015 due to supply side structural reforms and environmental policies, production has increased in all other years. In 2022, China's caustic soda production reached 39.81 million tons, an increase of 2.30% compared to 2021. Among them, liquid alkali production accounts for about 83%, and solid alkali production accounts for about 17%. 32% of the liquid alkali production accounts for 59%, while 50% of the liquid alkali production accounts for 19%; The production of 99% flake alkali in solid alkali accounts for 14%.
From a regional perspective, the supply of caustic soda in China is mainly concentrated in East China, North China, and Northwest China. Among them, the East China region is the region with the most concentrated distribution of caustic soda in China, with a production capacity of about 22.09 million tons, accounting for 49.88% of the total production capacity in the country. The production capacity of North China and Northwest China is 7.62 million tons and 6.23 million tons, accounting for 17.21% and 14.07% respectively. The proportion of production capacity in Central China, Southwest China, Northeast China, and South China is 8.47%, 4.95%, 2.78%, and 2.64%, respectively. Although caustic soda production is relatively concentrated geographically, the concentration ratio of domestic caustic soda industry is not high. As of 2022, there are a total of 163 caustic soda enterprises in China, with only 4 enterprises having a production capacity exceeding 1 million tons per year, accounting for only 10.40% of the total production capacity. There are a total of 20 caustic soda production enterprises with a production capacity of 500000 to 1 million tons per year, with a total production capacity accounting for 27.91%.

The figure shows the apparent consumption and year-on-year growth rate of caustic soda in China from 2007 to 2022

From the demand side, the domestic demand for caustic soda shows a rapid growth trend. According to data released by the China Chloroalkali Industry Association, from 2007 to 2022, the apparent consumption of caustic soda in China increased from 16.15 million tons to 37.01 million tons, a total increase of 20.83 million tons, an increase of 129.16%, and an average annual growth rate of about 5.69%. In 2015, there was a slight decrease in demand, partly due to the optimization of the downstream alumina electrolytic aluminum industry chain structure of caustic soda, resulting in a decrease in demand for caustic soda; On the other hand, it is affected by the decrease in caustic soda production. In 2022, the apparent consumption of caustic soda in China slightly decreased to 37.01 million tons, a year-on-year decrease of 1.27%, mainly due to the significant increase in export volume.
From the perspective of regional distribution, the demand for caustic soda in China is relatively widespread. Among them, the province with the highest demand is Shandong Province, with a demand of 8.07 million tons in 2022, accounting for 21.52% of the total national demand. Except for Shandong, Shanxi, Guangxi, Jiangsu, Zhejiang, Jiangxi, Guangdong, Henan, Hebei, and Sichuan respectively rank second to tenth in terms of national demand, with demand accounting for 8.43%, 6.82%, 6.73%, 6.42%, 6.34%, 5.95%, 5.42%, 4.89%, and 3.92%, respectively. The demand of the top five provinces accounts for 49.92% of the national demand, while the top ten provinces account for 76.44%.

The figure shows the apparent consumption and year-on-year growth rate of caustic soda in China from 2007 to 2022

From the perspective of downstream consumption structure, China's caustic soda consumption is mainly in the alumina industry, followed by industries such as chemical engineering, water treatment and medicine, papermaking, textile printing and dyeing, light industry, and petroleum and military industry. The demand for alumina industry accounts for about 31% of downstream consumption, chemical industry accounts for about 17%, water treatment, medicine, and other industries together account for about 15%, paper industry accounts for about 12%, textile printing and dyeing accounts for about 10%, light industry accounts for about 8%, and petroleum and military industry accounts for about 7%. With the growth of the national economy, the downstream demand for caustic soda continues to increase. In downstream industries, alumina and chemical industries are the main sources of growth in demand for caustic soda. According to the Bayer process, theoretically, producing 1 ton of alumina requires approximately 0.1 tons of caustic soda. In practice, considering factors such as losses, it takes approximately 0.15 tons of caustic soda to produce 1 ton of alumina. Since 2007, China's alumina production has significantly increased, reaching a level of 81.86 million tons in 2022, a year-on-year increase of 5.66%. In the chemical industry, the application range of caustic soda is very wide, and the production of most chemical products shows an increasing trend, and the consumption of caustic soda has also increased.
Characteristics and direction of caustic soda trade
The flow of caustic soda trade in China shows a characteristic of "from west to east and from north to south". The production of caustic soda in North and East China is mainly based on liquid alkali, and the transportation and storage of liquid alkali are more difficult. Therefore, after meeting local demand, the above-mentioned areas mainly flow to surrounding areas through car transportation or to Fujian and Guangdong in southern China through sea transportation. The northwest region mainly produces solid alkali, and long-distance transportation of solid alkali is more convenient. The caustic soda in the northwest region mainly flows to East China, South China, Southwest and Central China through railways.
The sales methods of caustic soda are mainly divided into direct sales and distribution, and direct sales is the main sales method for domestic caustic soda enterprises. The transportation methods include pipeline transportation, automobile transportation, rail transportation, and water transportation. Generally speaking, pipeline transportation is used within the park, with truck transportation being the main method within 300 kilometers, and long-distance transportation usually using ships or railways. Due to the hazardous nature of caustic soda, tank trucks are required for the transportation of liquid caustic soda. Vehicles must be equipped with hazardous material identification and escorts, and the carrier company must hold a hazardous goods road transportation permit.
In terms of storage, solid alkali storage is more convenient and has higher security. In the industry, solid alkali is often packaged in bags and stored in ventilated and dry warehouses, with a general storage fee of 1.0-1.4 yuan/ton/day. Liquid alkali has strong corrosiveness and relatively higher storage costs. Generally, storage tanks with a capacity of 4000-7000 cubic meters are used for storage, and the storage fee is usually 1.2-1.7 yuan/ton/day.
In terms of pricing power, the current quotation of domestic caustic soda is mainly divided into market value and ex factory price. According to different models, there are different market value and ex factory price quotations. Generally speaking, the market value is higher than the factory price, and the higher the sodium hydroxide content, the higher the price. In the spot market, some companies will quote at a 100% discount to sodium hydroxide. At present, domestic caustic soda is mainly priced on a monthly basis, which is fully negotiated between upstream production enterprises and downstream consumer enterprises.
Import and export situation of caustic soda
With its production capacity and price advantages, China is a major exporter of global caustic soda, and its import volume has remained low for a long time. According to customs data, in 2022, the import volume of caustic soda in China was 8900 tons, and the export volume was 3.2477 million tons, an increase of 118.88% compared to 2021. China's caustic soda exports have long been dominated by liquid alkali, but due to the convenience of solid alkali transportation and lower storage costs, the proportion of domestic solid alkali exports significantly increased from 2011 to 2020. In 2021 and 2022, overseas liquid alkali supply was relatively tight, with a significant increase in domestic liquid alkali exports and a decrease in the proportion of solid alkali exports.
The main export destinations for caustic soda in China include Asia, Oceania, and Africa, with the export volume from these regions accounting for 47%, 34%, and 11% of the total domestic caustic soda export volume, respectively. Specifically, Australia, Indonesia, Vietnam, the Philippines, and Brazil are the main exporting countries of Chinese caustic soda. In 2021, China exported 448300 tons of caustic soda to Australia, 180900 tons to Indonesia, 97400 tons to Vietnam, 61800 tons to the Philippines, and 50200 tons to Brazil. In 2021, the export volume of the top five caustic soda exporting countries accounted for 56.66% of China's caustic soda export volume, while the top ten caustic soda exporting countries accounted for 66.19%. The export destinations of caustic soda in 2022 have not changed much. From January to December 2022, China exported 828600 tons of caustic soda to Australia, 588400 tons to Indonesia, 136700 tons to Vietnam, and 122300 tons to Brazil.
The development of China's caustic soda industry is greatly influenced by national policies, and has undergone institutional reform, production technology innovation, and industrial structure adjustment. The development stage can be divided into exploration stage, preliminary development stage, rapid development stage, and stable development stage. With the continuous growth of downstream demand for caustic soda and the rapid development of the chlor alkali industry, the caustic soda industry in China has also continued to increase. In order to improve the overall competitiveness of the caustic soda industry, reduce energy and raw material consumption, and achieve sustainable development, the country has continuously introduced industrial policies to guide the healthy and stable development of the industry. In this context, low efficiency small enterprises and backward production capacity will be forced out. Industry leading enterprises will rely on resource advantages, cost advantages, technical advantages, market advantages, scale advantages, etc. to enhance their competitiveness, promote industry concentration ratio, improve industry capacity structure, and usher in new development opportunities.