(Yicai Global) Aug. 13 -- Sodium carbonate futures on the Zhengzhou Commodity Exchange jumped to the highest in almost two years amid the booming solar power industry and tightening emission standards.

Dominant contract prices on the ZCE climbed to CNY2,748 (USD424) this morning, the highest since December 2019 when the material used in making glass and detergents was listed on the exchange. The prices have more than doubled since last December.

Limited Output

Moreover, prices have been rising because environmental protection policies have limited production hikes, a market insider said to Yicai Global. Producers have refrained from releasing new major projects and some have even been forced to scale down.

Manufacturers' inventories of sodium carbonate have been declining in the past 13 weeks, which has helped the prices to remain high, said Wei Chaoming, researcher at the Research Institute of Founder CIFCO Futures.

Producers' reserves tallied from 340,000 tons to 350,000 tons last week, down by more than 4 percent from the previous week, Wei added. The annual decrease was almost 69 percent.

Solar Power

Meanwhile, the demand is rising.

China's demand for sodium carbonate in making photovoltaic glass should remain high in the next three years, some institutions have predicted. PV glassmakers could need 3.1 million tons of soda ash by 2023 and more than 5 million tons by 2025 amid expanding output, they added.

Last year, China produced about 10.2 million tons of PV glass and the related demand for sodium carbonate was around 1.5 million tons, per industrial data.

Emissions Cap

Two of the three common ways of making sodium carbonate in China are considered polluting, Zhang Linglu, senior analyst at Everbright Futures, said to Yicai Global. That's why applications to increase output are hard to approve, Zhang added.

China's soda ash output is expected to keep on declining till new more environmentally friendly production techniques are adopted late next year or in early 2023, Zhang added.

China's new national carbon credit trading system is making supervision more efficient. "Some Chinese sodium carbonate makers have to exit the market due to the lack of carbon emission quotas after carbon credit trading is initiated," an insider in the chemicals industry who wished to remain anonymous said to Yicai Global.

The system that was debuted in July is gradually including more industrial firms but the impact is already showing. A company with an annual capacity of 1.3 million tons of soda ash may need to shut at the end of this year, while another one with a capacity of 600,000 tons may also exit or start restructuring between 2022 and 2023, said the chemicals expert.

Prices are not bound to soar forever. Investors should remain calm, according to Wei. The current pricing of soda ash reflects the expectations of both supply and demand side, so investors should be aware of the risks of price slumps, the researcher added.

Editor: Tang Shihua, Emmi Laine, Xiao Yi