Guotai Junan Futures: Caustic soda valuation is low, and it may experience a relatively strong fluctuation later on.

Recently, caustic soda futures have pulled back. The main logic for the shorts is the delivery pressure in nearby-month contracts and weaker follow-through on high-priced export orders. At the same time, caustic soda inventory remains relatively high, which suppresses the spot elasticity of 32% caustic soda. As a result, the caustic soda basis has seen a sharp contraction, and the 05 contract is currently roughly at parity with the spot price. However, considering that Weiqiao’s delivery volume is still on the low side, there is an expectation of price increases in procurement, and 32% caustic soda still has a trend of converging toward 50% caustic soda. Therefore, valuation is already at a low level for now.

In the medium to long term, watch for changes in the situation in the Middle East. If the situation in April has not eased, the curtailment efforts by overseas refining and chemical enterprises will increase, and the reduction in domestic PVC output via the ethylene-based route will also increase significantly. This, through the chlor-alkali balance mechanism, will lead to passive production cuts in caustic soda. In addition, since the Middle East is a net caustic soda net-export region, the fulfillment of long-term contract supply is hindered. These orders are a necessity for demand, and procurement is simply a matter of time.

In short, high-priced export transactions are temporarily blocked in the near term, while high current inventory and nearby-month delivery pressure drive a short-term pullback in the caustic soda market. But later, expectations for improvements in domestic supply-demand contradictions will improve; Weiqiao’s procurement price increase is not over, and the market is expected to operate with a bullish bias. Going forward, it will be necessary to continuously track overseas unit dynamics and China’s export deal signings. (Guotai Junan Futures)