Soochow: Focus on the mismatch of supply and demand for caustic soda in the first half of 2025.

Soochow released a research report stating that it is expected that by the end of 2025, there will be an excess supply of 1.21 million tons of caustic soda in China, but there will be a supply-demand gap of 260,000 tons in the first half of 2025. It is anticipated that the caustic soda and alumina production capacity in China will increase in 2025. Specifically, the new caustic soda production capacity will mainly concentrate in the second half of 2025, while the largest downstream aluminum oxide production capacity will focus in the first half of 2025. Attention should be paid to the opportunity for caustic soda prices to rise in the first half of 2025 due to supply-demand mismatch. Companies with relatively low unit caustic soda production capacity and well-equipped liquid chlorine facilities are expected to benefit. Main points from Soochow: Supply side: In 2024, China's caustic soda production capacity was 50.416 million tons (a year-on-year increase of 3.3%). In terms of regions, China's caustic soda enterprises are mainly distributed in the East, North, and Northwest regions, and the market concentration is low. By the end of 2024, there were only 5 enterprises with a caustic soda production capacity of over 1 million tons per year, accounting for only 2.8% of China's total capacity. According to the "Industrial Key Energy Efficiency Benchmark Level and Reference level (2023 version)," the policy requires that 25 stock projects in energy-intensive sectors such as soda ash and caustic soda that have energy efficiency levels lower than the benchmark level should technically renovate or be eliminated by the end of 2025. It is expected that 2025 will be a key node for changes in caustic soda production capacity, and actual caustic soda production capacity will be limited. It is expected that China's actual new caustic soda production capacity will be 3.8 million tons in 2025, with actual new production of 3.1 million tons, and more caustic soda production capacity will be concentrated in the second half of 2025. Demand side: From January to November 2024, China's apparent consumption of caustic soda was 34.96 million tons (a year-on-year increase of 6%). In terms of downstream demand composition, there are many application areas for caustic soda, with aluminum oxide being the largest sector in terms of demand in China's downstream caustic soda industry, accounting for approximately 31% of demand in 2024. According to Baichuan Yingfu, it is estimated that China's new aluminum oxide production capacity in 2025 will exceed 100 million tons, which is expected to drive an additional demand of approximately 1.24 million tons of caustic soda for the year. Taking into consideration all downstream application sectors of caustic soda, it is estimated that there will be an additional demand of 1.59 million tons of caustic soda in 2025. Since more aluminum oxide production capacity in China will be concentrated in the first half of 2025 (with an estimated production capacity of 7.4 and 4.4 million tons in the first and second halves of 2025 respectively), and companies need to purchase caustic soda in advance for stocking, it is expected that aluminum oxide demand for caustic soda in the first half of 2025 will have a significant boost. Investment advice: It is recommended to focus on Xinjiang Zhongtai Chemical (002092.SZ), Shanghai Chlor-alkali Chemical (600618.SH), Xinjiang Tianye (600075.SH), Shaanxi Beiyuan Chemical Industry Group (601568.SH), Befar Group (601678.SH), Tangshan Sanyou Chemical Industries (600409.SH), Anhui Hwasu Co., Ltd. (600935.SH), Yibin Tianyuan Group (002386.SZ), Zhejiang Oceanking Development (603213.SH). Risk warning: Risks of lower-than-expected downstream demand; risks of new project production being lower than expected; risks of significant fluctuations in raw material costs.