Anti-involution to improve the expectation of glass soda ash, waiting for specific policies to be introduced

Perspective Overview:



In the first half of the year, the supply and demand of glass soda ash was in a loose state, the price was running near the cost, and the market passively followed the fluctuation of coking coal.



The recent market situation is dominated by the expectation of anti-involution policies, and the emotional overfall repair in the short term still needs to be correctly understood in the long term. Since the Central Financial and Economic Commission held a meeting on July 1 to clearly propose anti-involution, a series of policies have been introduced, and the anti-involution is expected to be strengthened step by step, basically confirming that anti-involution should be made from both ends of supply and demand to solve the current market involution deflation problem, the determination and direction of the policy are determined, and the future glass soda ash may experience a pessimistic expectation reversal, rapid valuation repair, and the process of supply and demand rebalancing after the introduction of the policy.



At present, glass soda ash continues to soar under the expectation of rising costs and elimination of backward production capacity, while the anti-involution sentiment has cooled down after the restriction of coking coal positions, and the market has plummeted. We estimate that the policy direction may be based on the industry energy consumption index policy introduced in 2024, tightening the indicators and buffer time to achieve the anti-involution target. In short, the anti-involution policy goal is relatively clear, it may take a long time to implement the process, if the policy effect is not good, the policy may be flexibly adjusted, and finally achieve the effect of anti-involution, so it should not be overly bearish on the profits of the industry, and the policy has improved the long-term expectations of the glass soda ash industry.



Strategic advice: short-term wait-and-see, medium- and long-term low multi-mindedness, wait for sentiment to stabilize, and drive strengthening.



Risk warning: The policy falls short of expectations.



1. The balance between glass supply and demand is weak, and the surplus of soda ash is obvious



Since the beginning of this year, the fundamentals of glass soda ash have been in a state of loose supply and demand, the price is running near the cost, the cost is greatly affected by the fluctuation of coal prices, and the market is basically passively following the fluctuations of coking coal, and has not gone out of the independent market.

The downstream demand for glass includes real estate, automobiles, home appliances and electronics, etc., the demand we calculate accounts for about 85.6%, 5.1%, 8.1% and 1.3% respectively, of which real estate occupies a dominant position, the glass demand cycle is basically consistent with the real estate completion cycle, the completed area has continued to decline in recent years, so far it has not stabilized, it is expected that there is still room for decline in the future, glass demand is also continuing to weaken, and the daily melting volume of glass on the supply side is also declining with the profit situation. At the end of 2024, we roughly calculated the glass demand in 2025 based on the real estate construction cycle, second-hand housing transaction volume, and the output of automobiles and home appliances, and found that glass supply and demand are basically balanced, but the actual situation is that the resumption of work in various places is slow after the Spring Festival this year, construction demand is delayed, and the overall completion of the construction industry in the first half of the year fell by more than 10% beyond expectations.



The current glass production capacity is about 74 million tons, some production lines are long-term suspension, in 2021 glass profit period, the industry's capacity utilization rate can reach up to 90%, and the current capacity utilization rate is about 78%, the production capacity is relatively sufficient. Although the general trend of glass prices has declined this year, the cost has also continued to decline, profits have not deteriorated further, the daily melting volume of glass is relatively stable, maintained at about 157,000 tons / day, after April, the number of glass downstream processing plant orders basically recovered to a high level, and in the case of low domestic glass prices and international tariff disturbances, glass exports have increased significantly, which has a certain support for demand , downstream inventory is low. If future expectations reverse and the market forms positive feedback, glass still has some room to rise.

At present, the soda ash production capacity is about 41 million tons, most of the production capacity is active production capacity, the capacity utilization rate can reach up to about 95%, the current is 84%, the production capacity is more sufficient, because the soda ash manufacturers are more flexible to start construction, the overcapacity is more obvious, the price falls to the near cost, and the coal price fluctuates. Relatively speaking, the demand for soda ash is relatively easy to calculate, the production of heavy soda downstream glass is relatively stable, the daily consumption calculation is simple, and the downstream demand for light soda is relatively scattered, but generally following the GDP growth, we calculate that the demand for soda ash in 2024 is about 33 million tons, and the excess supply and demand is about 3.9 million tons, and the demand for soda ash is expected to be basically flat year-on-year in 2025, but there are still new production capacity planned to be put into operation in the future, the surplus rate has intensified, and the total inventory of soda ash continues to increase to a historical high. At present, we calculate the weekly output balance of soda ash at about 700,000 tons, due to the high inventory, some manufacturers maintain low in line with the operation, the overall weekly output fluctuates around 700,000 tons, the total inventory is still slowly increasing, in short, the surplus of soda ash is more serious, if there is no backward production capacity elimination, it is difficult to change the state of excess supply and demand.

Second, the anti-involution changes the expectation of glass soda ash, and the industry may accelerate the elimination of backward production capacity



In the first half of the year, glass soda ash overcapacity, prices continued to fall to near the cost, enterprises were under greater pressure, many other industries are also in a similar situation, the market economy has fallen into a deflationary spiral of insufficient demand, unlimited involution, on July 1, the Central Financial and Economic Commission held a meeting to clearly propose: to promote the construction of a unified national market in depth, focus on key and difficult points, govern the low-price disorderly competition of enterprises in accordance with laws and regulations, guide enterprises to improve product quality, promote the orderly withdrawal of backward production capacity, and the market begins to anti-involution expectations.



At the beginning, most of the market thought that the anti-involution may be mainly in the photovoltaic and new energy vehicle industry chain, because these two are strategic industrial chains cultivated by the government after years of planning, the futures varieties are mainly polysilicon, and the photovoltaic industry also has rumors of production control, price control, capacity acquisition, etc., so polysilicon is the first variety to start rising.



Subsequently, a series of policies were gradually introduced, 1. Xie Shaofeng, chief engineer of the Ministry of Industry and Information Technology, said at the press conference of the State Council Information Office on July 18 that the work plan for the stable growth of ten key industries such as steel, non-ferrous metals, petrochemicals, and building materials is about to be introduced, and the Ministry of Industry and Information Technology will promote key industries to focus on adjusting structure, optimizing supply, and eliminating backward production capacity. 2. The construction of the lower reaches of the Brahmaputra River hydropower project has started, with an investment of 1.2 trillion yuan. 3. The General Department of the National Energy Administration issued a notice to promote the stable and orderly supply of coal, and plans to organize the verification of coal mine production in key coal-producing provinces (regions) in the near future. 4. The Regulations on Rural Companies promote the upgrading and transformation of rural roads. 5. The Draft Amendment to the Price Law of the People's Republic of China (Draft for Comments) is publicly solicited for comments, which mentions that it is necessary to further clarify the criteria for identifying unfair price behavior, improve the identification standards for low-price dumping, standardize the market price order, and govern "involution" competition. With the gradual clarification of the policy, the expectation of anti-involution is strengthened step by step, and it is basically confirmed that anti-involution should be made from both supply and demand ends to solve the current problem of involution deflation in the market, and the market continues to rise in the step-by-step confirmation.



In this series of policies, the biggest impact on glass soda ash is 1. The National Energy Administration verified that coal mines are overproduced, coal supply may further decline, coal prices have rebounded sharply, the cost of glass soda ash has risen, and the market has followed the rebound in coal prices. 2. The Ministry of Industry and Information Technology promotes the elimination of backward production capacity, which may redefine the concept of old equipment in the petrochemical industry, adjust the original standard from 30 years to 20 years, or become the starting point for the elimination of backward production capacity in the glass soda ash industry. 3. The "Feasible Technical Guidelines for the Prevention and Control of Air Pollution in the Glass Industry (Draft for Comments)" is open for comments. These three points may affect the supply of the industry from the aspects of cost, elimination of backward production capacity, technological upgrading, etc., but the specific policy has not yet been released, and quantitative analysis cannot be done, let's first sort out the current situation of the market.



In the glass industry, if the policy wants to use old devices as the standard to eliminate backward production capacity, then the impact may be great. The glass industry is characterized by a production line after ignition, generally continue to run for 8-10 years before cold repair, and the cold repair process will also do some technical upgrades, so that the new ignition production line is likely to be more technologically advanced. At present, the daily melting volume of glass is about 157,000 tons/day, of which the production line that has been running for 10 years and more is considered an old line, accounting for about 13-14%, if the policy wants to complete the technical transformation of the production line for 10 years and more, then it will have a huge impact on glass production, and the cold repair time of the glass production line is at least about 4 months, which will cause a long period of market supply and demand mismatch, and the supply and demand are extremely tight.



If the policy wants to eliminate backward production capacity with environmental protection and fuel standards, then the impact may also be great. At present, the proportion of glass production lines fueled by natural gas, coal, petroleum coke and heavy oil is 61%, 19%, 19% and 1% respectively, and the government is also constantly supporting and guiding the production process to upgrade to natural gas.



Of course, the actual situation is unlikely to have a significant impact on the industry in a short period of time with a standard across the board, and the goal of the policy is mainly to end the current state of excessive involution and allow enterprises to have reasonable profits, and the standard formulated by the policy may also be based on the "Guidelines for Equipment Renewal and Technological Transformation in Key Industrial Industries" issued in 2024, adding stricter indicators to complete the goal of phasing out backward production capacity.

Soda ash industry, the current production capacity is about 41 million tons, and the production capacity of more than 20 years we count is about 34%, but the soda ash equipment maintenance is flexible, and the old production capacity is also constantly upgrading technology and environmental protection in the process of operation, and there are actually fewer old and backward devices. If the policy is based on energy consumption indicators, the soda ash industry has issued the "Energy Consumption Limit for Soda Ash Unit Products" in 2024, which will be implemented on May 1, 2025, which will have little impact on the industry at present.



In short, the recent market is dominated by the anti-involution policy expectations, the emotional overfall repair in the short term, or the long-term correct understanding of the policy direction, we feel that the interpretation of the anti-involution of the "Qiushi Network" is more rational and practical feasibility, the article of "Qiushi Network" points out that the rectification of "involution" competition is a complex systematic project, it is impossible to achieve it overnight and win in one move, it is necessary to follow the laws of the economy, gather the forces of all parties, take a multi-pronged approach, and comprehensively rectify. Specific plan: 1. Coordinate efforts on both sides of supply and demand to promote the dynamic balance of total supply and demand. 2. Standardize government behavior and promote a better combination of effective market and promising government. 3. Strengthen industry self-discipline and improve the consciousness of industries and enterprises to fight against "involution". Among them, some of the problems that can be solved in the short term are the coordinated efforts of both supply and demand, but to solve the problem in the long term, it is necessary to standardize government behavior, because the most important driving force for our country's economic development comes from the guidance and promotion of local governments, the most prominent point of the current economic problem is insufficient domestic demand, overcapacity, the most fundamental solution is government tax reform, tax guidance the government to reduce the attention to investment, increase the attention to consumption, so as to form the internal circulation of supply and demand balance. Serious involution does not exist alone, but is one with the current problems faced by our country in the economic transition period, anti-involution is a systematic project, it and the general direction of our economy to high-quality development should be carried out and completed synchronously, this is a long-term process, we believe that the commodity market reaction is more violent, because in the process of continuous decline before, pessimistic expectations lasted too long and were too consistent, and an emotional overfall repair was formed after the reversal of expectations, and the market outlook still needs to evaluate the market according to specific policies At least the determination and direction of the policy are determined, and glass soda ash may have to go through a process of pessimistic expectation reversal, rapid valuation repair, and rebalancing supply and demand after the introduction of the policy.



At present, glass soda ash continues to soar under the expectation of rising costs and elimination of backward production capacity, while the anti-involution sentiment has cooled down after the restriction of coking coal positions, and the market has plummeted. We estimate that the policy direction may be based on the industry energy consumption index policy introduced in 2024, tightening the indicators and buffer time to achieve the anti-involution target. In short, the anti-involution policy goal is relatively clear, it may take a long time to implement the process, if the policy effect is not good, the policy may be flexibly adjusted, and finally achieve the effect of anti-involution, so it should not be overly bearish on the profits of the industry, and the policy has improved the long-term expectations of the glass soda ash industry.