abstract
In the first half of 2023, PVC prices showed a slight upward trend after reaching a high point of 6700, and began to decline. The initial upward support was mainly driven by export volume and real estate policy expectations in the first quarter. However, in February, PVC overall showed a downward trend, mainly due to the gradual landing of new production and the continued weak demand. The supply-demand contradiction is reflected in the high inventory, The expectation of a strong recovery in the macro economy has been transformed into a weak recovery, and the rebound momentum of PVC has been weakened time and time again, opening up a downward channel with a minimum of 5600. From the performance of the basis and price difference, it can be seen that when the PVC market strengthens, the basis does not follow, and the monthly price difference also weakens synchronously, reflecting the actual supply and demand pattern difference.
In the first half of 2023, PVC prices showed a slight upward trend and began to decline after reaching a high point of 6700. The initial upward support was mainly driven by export volume and real estate policy expectations in the first quarter. However, after entering February, PVC overall showed a downward trend, mainly due to the gradual landing of new production, and the continued weak demand. The contradiction between supply and demand is reflected in the accumulation of high inventory, coupled with macroeconomic expectations of strong recovery turning into weak recovery, The rebound kinetic energy of PVC weakens time and time again, opening the downward channel to reach a minimum of 5600. From the performance of the basis and price difference, it can be seen that when the PVC market strengthens, the basis does not follow, and the monthly price difference also weakens synchronously, reflecting the actual supply and demand pattern difference.
In terms of recent market performance, PVC has rebounded to a certain extent due to unexpected shutdown of large capacity units in Xinjiang that has not yet recovered and policy expectations have resumed. However, the judgment given is that there is still pressure above, and the main logic is that after the maintenance period, it is difficult to increase or reduce supply, domestic demand has not seen a substantial boost, and high inventory is still difficult to digest. In addition, the decrease in costs has led to an improvement in PVC losses, and the possibility of large-scale production reductions in the upstream has once again decreased. The supply and demand pattern is difficult to improve, and the upper pressure level is around 5900, which was reached during the maintenance period when the supply was relatively tight. The risk point lies in the strengthening of cost support in the summer, which leads to a further expansion of PVC losses, an increase in supply reduction exceeding expectations, and policy expectations leading to fluctuations exceeding expectations.
Specifically, in terms of supply, the actual production capacity of PVC increased significantly in the first half of this year: Huayi 400000 tons, Xinfa 400000 tons, Wanhua 400000 tons, Dezhou Shihua 100000 tons, and Julong 400000 tons, with a negative increase of 50%. As of the end of June, a total of 1.5 million tons were added, with a production capacity growth rate of 5.6%, far higher than the same period last year. Therefore, even in the low start of construction in the first half of this year, the new production capacity is sufficient to offset the supply reduction caused by the maintenance season from April to June and the long-term shutdown of equipment due to losses. The cumulative production in the first half of this year is about 11.19 million tons, a slight decrease of 0.9% compared to last year. Looking ahead to the second half of the year, the spring inspection is coming to an end, and supply will gradually return in the third quarter. However, due to the current situation where profits are mostly near the profit and loss line and the cost side is once again declining in the summer, or the extent is limited, the increase in construction may be hindered. On the other hand, considering the current statistics of social inventory and hidden inventory surplus, it is still necessary to rely on marginal production capacity to continue clearing inventory. Therefore, there is a marginal increase in construction, but the extent is limited. In terms of new production, the Zhenyang 300000 ton ethylene process is planned to be completed and put into operation after June, while the Shaanxi Jintai 600000 ton production is postponed to August. Although there is a possibility of delay, the increase in load on landing devices in the first half of the year is enough to bring significant supply pressure.
In terms of chlor alkali balance, this year's
Caustic Soda has a weak pattern due to its new production and weak downstream demand for alumina. Therefore, in the case of a weak chlor alkali situation, it is difficult to see strong support for comprehensive profits from last year's alkali chlorine replenishment. It is necessary to pay attention to the profits and development situation of the two in the future.
In terms of domestic demand, from the perspective of regional commencement, the commencement in North China is at the middle level of the same period in previous years, while that in East China and South China is at a low level and has begun to decline to around 50% since May. From a specific industry perspective, pipeline, profile, product, and membrane enterprises performed relatively well in the first quarter, mainly due to the confirmation of completion growth rate and the fulfillment of guaranteed delivery building orders. However, in the second quarter, various industries have started to decline in construction, currently reaching 45% -50%. The main reason is that demand has entered the off-season, real estate follow-up is insufficient, enterprise orders are poor, and stocking intentions are also weakening. In the face of high priced raw materials, there is a clear resistance, and pricing is often used for sales. Looking ahead to the future, more than 50% of the downstream demand for PVC comes from real estate. Real estate data shows that the performance of new construction projects is still poor, and the transaction land area and commercial housing transaction data are not good. In addition, the inventory of commercial housing for sale is high, and the entire city has not seen a positive cycle driven by policy relaxation. Therefore, the improvement of PVC domestic demand still needs to be observed. In terms of external demand, the cumulative export volume of PVC powder from January to May was 928300 tons, a year-on-year decrease of 8.90%. We mainly consider the Indian region for powder export. India's own production capacity is around 1.6 million tons, and there has been no new production in the past two years, mainly relying on imports.
In 2022, India will import 1.4 million tons in the whole year. From the seasonal perspective of India's imports, the import climax will be from March to June and from October onwards (mainly from China (20%), the United States, Taiwan, China, and Japan). In the first quarter of this year, India's demand for restocking was overdrawn ahead of schedule, and June September is the traditional monsoon season. It is expected that India's demand will slow down. In addition, India has already had another wave of restocking around mid June, and its acceptance of offers above $710/ton is not high. Correspondingly, China's exports will also slow down, and it will face competitive pressure from exports after the completion of maintenance in the United States. In terms of product exports, considering that the decline in the RMB exchange rate is beneficial for exports, it is necessary to pay attention to external demand in the future. Keep expectations in your judgment of exports, but do not give too high expectations.
Overall, we can see that the supply and demand pressure in the second half of the year is still not to be underestimated. Currently, both PVC enterprise inventory and social inventory are at a high level. In the second quarter of previous years, due to centralized maintenance, seasonal inventory removal was relatively smooth. However, as of the end of June this year, social inventory levels have accumulated high again. It is expected that with the return of supply in the later stage, the accumulated inventory pressure will further increase. Therefore, under the high inventory structure, the main direction is still rebound empty. The risk point lies in the strengthening of cost support in the summer, which leads to a further expansion of PVC losses, a supply reduction exceeding expectations, and an increase in policy expectations leading to fluctuations exceeding expectations.
