Terminal industry peak season available
The price trend of PVC in the first half of the year took the Spring Festival as the dividing point, showing an upward trend followed by a downward trend. In the third quarter, due to the difficulty in improving the pattern of strong supply and weak demand, PVC prices may fluctuate in a low range. In the fourth quarter, with the arrival of the peak consumption season in the terminal real estate industry, PVC prices are expected to oscillate and rebound.
The price trend of PVC in the first half of the year took the Spring Festival as the dividing point, showing an upward trend followed by a downward trend. Before the Spring Festival, on the one hand, after the optimization of epidemic prevention and control measures, the introduction of favorable real estate policies reignited the market's expectations for improving the real estate market; On the other hand, there is export growth and seasonal pre holiday stocking by downstream traders. The PVC price continues the upward trend since the end of last year, with the main futures contracts reaching a maximum of around 6700 yuan/ton.
After the Spring Festival, macro expectations are difficult to sustain, which has repaired the high pre holiday sentiment. At the same time, the new production capacity for trial production at the end of last year gradually went into mass production, and the market supply gradually increased. Under the pattern of strong supply and weak demand, both PVC enterprise inventory and social inventory remain at high levels. At the same time, upstream calcium carbide prices have also experienced a certain degree of decline. Under multiple bearish factors, PVC prices are showing a downward trend. As of mid June, the price of PVC main contracts has dropped to the lowest point near 5500 yuan/ton at the end of November last year.
[Export orders or significant reduction]
Due to the high prices and high profits of PVC in the first two years, the expansion of the device has accelerated. As of the end of 2022, the domestic PVC production capacity has reached 28.725 million tons, continuing to firmly rank first in the world. Since 2023, in the fourth quarter of last year, Guangxi Huayi's 400000 ton ethylene production plant has been gradually put into mass production in late February; Shandong Xinfa's 400000 ton calcium carbide process equipment was fully put into mass production in March. Among the devices planned to be put into operation this year, Fujian Wanhua's 400000 ton new device was mass-produced in May; The 100000 ton EDC process unit in Dezhou Shihua was officially put into operation in February. Therefore, in the first half of this year, the actual new production capacity has reached 1.3 million tons.
In the second half of the year, there are still plans to increase production capacity by up to 1.4 million tons. The Jintai 600000 ton chlor alkali plant and the Zhejiang Zhenyang 300000 ton project are planned to be put into operation in the third quarter. In addition, Tianjin Dagu's 400000 ton new unit and Dezhou Shihua's other 100000 ton EDC process unit also have production plans. The pressure on the supply of new production capacity remains significant.
In 2022, despite a 4.68% decrease in domestic demand, due to the continuous decline in PVC prices and the opening of export arbitrage windows, the export quantity actually increased by 8.31% year-on-year, which to some extent alleviated the domestic supply pressure.
In the first quarter of this year, exports continued to maintain a good state last year, with a cumulative PVC export volume of 653000 tons from January to March, an increase of 37.66% year-on-year. However, the export volume of PVC in April was 135000 tons, a decrease of 37.15% month on month and 51.51% year-on-year. There are two main reasons for the decline in exports:
One is that exports to India are beginning to face quota restrictions. China's PVC export destinations are mainly Central Asia, South Asia, and Southeast Asia, with India being the country with the highest PVC export volume, accounting for approximately 29% of the total export volume in 2022. After the official expiration of India's anti-dumping policy against China's PVC powder in February last year, the quantity of PVC powder exported from China to India has significantly increased. In the first quarter of this year, 374700 tons were exported to India, accounting for 42.62% of the total exports. However, the continuous concentration of exports to the Indian market has put pressure on local Indian companies. On May 17th, the Trade Relief Administration of the Indian Ministry of Commerce and Industry released the final results of the investigation on the safeguard measures for imported polyvinyl chloride (PVC) suspension resins, recommending the implementation of a one-year safeguard measure in the form of quotas, which are distributed quarterly. Authorized officials suggest implementing quantity restrictions only on the import of PVC suspension resins with residual vinyl chloride exceeding 2 PPM. Due to the generally high residual amount of vinyl chloride in PVC produced by calcium carbide method in China, it is greatly affected. After implementing quota restrictions, the amount of PVC exported to India will significantly decrease in the second half of the year.
The second is to face fierce competition from low-priced exports of PVC from the United States. According to the analysis of S&P Global Commodity Insight, the high interest rate and weak economic growth in the United States are expected to put pressure on the US real estate market this year, which will have a certain impact on the growth of demand for PVC in the United States. But American vinyl Resin manufacturers have a cost advantage. Low natural gas price means that the cost of Chlorine production, the raw material of PVC, is low, and low ethane price means that the cost of ethylene raw material is low.
Therefore, the export of PVC products in China will not only face risks of trade friction, but also be impacted by low-priced foreign sources, intensifying market competition, increasing export pressure, and significantly reducing domestic PVC export orders.
[Expectations for positive real estate demand]
Since the beginning of this year, the real estate market, which is the main field of PVC terminal consumption (accounting for over 65%), has continued to be weak. According to data from the National Bureau of Statistics, from January to May, the national investment in real estate development reached 4570.1 billion yuan, a year-on-year decrease of 7.2%. Among them, residential investment reached 3480.9 billion yuan, a decrease of 6.4%; The construction area of real estate development enterprises' houses is 779506 million square meters, a year-on-year decrease of 6.2%; The construction area of residential buildings is 5484.75 million square meters, a decrease of 6.5%; The newly constructed area of houses is 397.23 million square meters, a decrease of 22.6%; The newly constructed residential area is 290.1 million square meters, a decrease of 22.7%; The completed area of houses is 278.26 million square meters, an increase of 19.6%; The completed residential area is 201.94 million square meters, an increase of 19.0%. From the above data, it can be seen that except for the increase in completed area, other indicators are still in a downward trend.
The market has always had expectations for the country to further introduce real estate stimulus policies, but even if corresponding policies are introduced, policy transmission will take some time. Meanwhile, due to the impact of high temperature and rainy weather, the third quarter is still the off-season for real estate demand. Therefore, it may be difficult for terminal real estate demand to truly improve in the third quarter. It is expected that in the fourth quarter, as the hot and rainy weather gradually passes, the peak season for consumption of gold, silver, and other related industries approaches, and the implementation of national real estate stimulus policies takes effect, the construction of real estate and related industries will gradually increase. If the real estate actual data is verified to be good, the domestic demand for PVC may improve to some extent.
In the first half of the year, PVC was generally in a pattern of strong supply and weak demand, with inventory at a historical high level, far higher than the same period last year. April is a seasonal peak demand season. Although overall inventory decreased in April this year, the main contribution of inventory depletion is supply contraction rather than demand increase. After missing the best inventory window in April, with the overall supply returning, the pressure is once again coming, and combined with the gradual weakening of exports and domestic demand, there is still a lot of pressure above PVC.
As of June 10th, the total domestic PVC inventory was 968300 tons, an increase of 55.57% year-on-year. Among them, the enterprise inventory was 462900 tons, an increase of 60.62% year-on-year, and the social inventory was 475400 tons, an increase of 42.46% year-on-year.
Currently, both PVC social inventory and corporate inventory are at a significantly high level, which has significantly suppressed PVC prices in the second half of the year. In the absence of significant improvement in demand, the decrease in inventory can only be resolved by increasing and extending maintenance, and reducing load. Only when enterprises are below the breakeven point can they force some devices to shut down or reduce load. Therefore, when inventory does not decrease to normal levels, PVC prices may find it difficult to experience a fundamental increase.
[There is support on the cost side]
Since June last year, the PVC carbide method has been in a state of continuous loss. Before the Spring Festival, due to good demand expectations, PVC prices continued to rise, and the degree of losses for enterprises gradually decreased, with profits being partially repaired. Although prices have fallen slightly after the Spring Festival, the price of calcium carbide has decreased even more, and profits have continued to improve to a certain extent. But in the second quarter, upstream calcium carbide prices increased, and PVC companies' losses expanded again.
At present, the operating rate of upstream calcium carbide has reached its lowest level since 2022. In the second half of the year, upstream calcium carbide enterprises will continue to experience load reduction behavior under the continuous loss of profits, and there is already very little room for further reduction from the calcium carbide end. Under the continuous loss of PVC, costs will provide a certain degree of support.
In summary, PVC overall remained in a dilemma in the second half of the year. On the one hand, the continuous production of new production capacity increases supply pressure, and the recovery of terminal real estate takes time. During the process of high inventory and destocking, prices lack a clear upward drive; On the other hand, the extremely low profits of upstream production enterprises make it difficult for PVC prices to continue to decline significantly due to certain cost support.
Specifically, the pattern of strong supply and weak demand in the third quarter will be difficult to improve, and with cost support, PVC prices may oscillate in a low range. In the fourth quarter, with the arrival of the peak season of consumption in the terminal real estate industry, as well as the effective implementation of national stimulus policies, demand will improve to a certain extent, and PVC prices are expected to break the deadlock and oscillate and rebound. In terms of operational strategy, it is recommended to focus on interval operations in the third quarter and shift to a bullish approach in the fourth quarter. In the future, attention should be paid to the systemic downside risk caused by overseas factors and the phased long opportunities when the national real estate policy is launched.
