Tata Chemicals shares slump 5.5% on slashing of soda ash prices

Shares of Tata Chemicals slumped 5.5 percent in early trade on April 18 after the company cut prices for for light and dense soda ash by 3-4 percent across India on Monday.

The price cut comes amid a decline in the prices of soda ash in China since mid-March as the market adjusts to the news of an unexpected substantial capacity addition underway in the country’s Inner Mongolia region by Yuan Xing Energy from May 2023.

Kotak Institutional Equities believes the price cuts should be partially mitigated by lower coal prices and a rise in prices in the North American region. “Though these factors should cushion the near-term impact of price cuts on consolidated earnings, the medium-term risk is that the market softness reflected in these cuts spreads to other regions, particularly exports out of the US and Kenya,” the brokerage firm highlighted.

Shares of Tata Chemicals also reacted negatively to the news and at 9.49am, were trading 4.07 percent at Rs 950.50 on the National Stock Exchange.

Seven lakh shares of the company changed hands on the exchanges, as against the one-month daily traded average of five lakh shares.

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Yuan Xing Energy’s capacity expansion was originally expected to be finished at a later date. However, according to recent information, the plant is now set to begin its capacity expansion next from May, starting with a capacity of 1.5 million tons per annum (TPA). This capacity is expected to increase gradually over the course of the year, reaching 5 million TPA by the end of 2023.

“Although the credibility of these capacity claims is not yet verifiable, the recent price action in China points to fears of local oversupply,” brokerage firm Kotak Institutional Equities wrote in its report.

The firm anticipates fourth quarter earnings for Tata Chemicals to be strong due to upward revisions to US domestic contract prices for 2023 and firm realizations on US exports. “However, the outlook for the second half of 2023 is less clear, given slowing demand from the construction and automotive sectors in the US and the influx of additional capacities from China and the US,” the brokerage noted.

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