Key points of the report
The supply and demand of PVC remained good in the second quarter. There is no pressure on the supply side, the new capacity is limited, and the stock devices are expected to be overhauled, and the export support is expected to be weakened in the short term and medium term. The terminal demand is expected to be better, but the high price suppresses the speculative demand of direct downstream replenishment.
In the second quarter, there is less chance of unilateral trend surge. In terms of operation, we should adopt the idea of strong shock, that is, we should maintain the idea of bargain hunting in the next 1-2 months, long and stop profit at every high, and we should maintain the idea of normal set in the aspect of futures, unless there is obvious obstruction in the stock decontamination after the end of April or even accumulation in the peak season.
Viewpoint:
The overall forecast of PVC supply and demand in the second quarter is still relatively strong. There is no obvious increase in the supply end chain, and the terminal demand is not bad. The main contradiction lies in whether the direct downstream cost pressure can be smoothly transmitted to the terminal. From the specific driving point of view, the current support lies in the strong cost and export volume, but the latter is expected to turn weak, and the current pressure lies in the direct downstream facing losses. In the future, the support lies in the fact that there is little new capacity and the stock devices are overhauled in a centralized way. The pressure in the future lies in the fact that after there is no speculative demand for replenishment in the downstream, the speed of going to the warehouse in the peak season may be lower than in previous years.
1、 Review of PVC market in the first quarter
Since the beginning of this year, the price center of PVC has continued to rise after a brief fall to around 7000 during the accumulation period in January. After the rapid rise after the Spring Festival, it fluctuated in the range of 8300-8800. In the middle of March, it broke through 9000 yuan / ton, and recently fell back to the range of 8600-8900.
Behind the logic: before the Spring Festival, most of the upstream and downstream of the industrial chain are expected to have better demand after the festival, and the disk price will gradually move up during the accumulation period before the festival. In the middle of the festival, due to the crude oil surge and the accident of the outer disk device, the downstream has not yet resumed work in the first week after the festival. The disk drives the spot price to rise rapidly, which brings huge cost pressure to the downstream and restrains the increment of direct downstream demand after the festival. However, the price did not fall after the high shock, but further breakthrough, which is mainly the supporting role brought by the tight supply of calcium carbide. Overall, the rise of PVC in this round is mainly driven by the expected support and the stimulation of the supply side. The actual increase of domestic demand is not strong, which can be seen from the fact that the base in East China has not been significantly strengthened.
2、 Cost remained strong, new capacity was little in the second quarter and the inventory and centralized maintenance of the storage units were expected
（1） In the context of "carbon neutralization", the limited supply of calcium carbide restricts the start of outsourcing calcium carbide method in a short period, which significantly increases the cost end of PVC in the medium and long term
Since 15 years of supply side structural reform and environmental governance, calcium carbide has changed from overcapacity to tight supply balance. With the long-term strategic goal of "carbon neutralization" put forward by the Party Central Committee, the supply of calcium carbide with high energy consumption and high emission in the production process may be further compressed in the future, and it is easy to be in short supply when the downstream PVC is kept high.
Inner Mongolia Autonomous Region, the main calcium carbide production region, has failed to meet the energy conservation and emission reduction planning objectives of the 13th five year plan. Therefore, the "double control of energy consumption" policy has been deployed from the end of last year, and it has been strictly implemented in March this year. Among them, the differential electricity price policy for high energy consuming industries increased the production cost of calcium carbide, while the power restriction directly restricted the operation rate of calcium carbide, which led to a serious shortage of calcium carbide in March, and the ex factory price of Inner Mongolia soared from 4000 yuan / T to more than 5000 yuan / T.
In the medium and long term, the supply of calcium carbide is limited, which restricts the capacity expansion of calcium carbide process. At the same time, the rising cost and price also greatly increase the cost of PVC production by outsourcing calcium carbide process, which makes the pricing center of PVC rise significantly compared with the past few years. In the short term, due to the incomplete integration, there will be more outsourcing calcium carbide method start-ups continue to be disturbed by calcium carbide problems. At present, the domestic capacity of PVC calcium carbide process is about 21.4 million tons, of which the capacity of supporting calcium carbide device is less than 14 million tons, and the supporting capacity of many enterprises is not enough to fully self-sufficiency.
（2） In the second quarter, the pressure on the supply side is still small: the new production capacity is limited and the stock of equipment is expected to be centralized maintenance
In the first quarter of this year, no new production capacity was put into operation. In the second quarter, the new production capacity is expected to be no more than 600000 tons, and the increment is relatively limited. Moreover, from the end of March, there will be a maintenance season for the stock units, that is, raw material problems plus maintenance season. The average operating load of the stock units is expected to be lower than that of the first quarter. Therefore, the supply side increment from April to May is very limited and may be reduced.
3、 In the early stage, the export volume reduced the pressure on the supply side, and it is expected that it will still be supported from April to may, but there is a marginal weakening expectation
Before the Spring Festival, global supply continued to be tight and the external market remained high. Taiwan's Formosa Plastics' march shipping quotation increased by US $20 / T compared with February, CFR India to US $1340 / T, CFR China to US $1210 / T, and FOB Northeast Asia to US $1160 / T. During the Spring Festival, the cold wave in Texas caused a large number of refining and PVC plants to shut down, further aggravating the tension of external supply. After the festival, Taiwan's Formosa Plastics price rose again by $300 / T in April, CFR India to $1640 / T, CFR China to $1510 / T, FOB Northeast Asia to $1460 / T.
Therefore, a large number of PVC exports (280000 tons) from January to February this year further reduced the upstream sales pressure, and the export support from March to April is expected to remain, but it is expected to weaken with the recovery of external supply. In other words, if Xinyue USA (1.45 million tons), Formosa Plastics USA (800 + 500000 tons), western chemical (1.27 million tons), West Lake Chemical (1.45 million tons) and other large units are fully restored in the future, the external quotation may fall from a high level.
4、 The expectation of terminal demand is not bad, but the direct downstream cost pressure is huge
（1） Direct downstream overall: the overall cost pressure is great, but the internal differentiation is serious
As far as we know, the inventory level of direct downstream raw materials before the festival is generally not very high, but the spot price of PVC after the festival has a sharp jump driven by the market sentiment, and the downstream mostly adopts the "production based on sales" mode, that is, to sign sales orders before production. Therefore, if the raw material PVC is not fully extracted and prepared or hedged, it will face huge cost pressure, which can only be realized through the cooperation The way to deal with it is to raise the price or to take less new orders for the time being.
Taking the most important downstream pipes and profiles as an example, we can estimate the current cost pressure according to the previous gross margin level of relevant listed companies. The gross profit margin of PVC pipe business of Yonggao, Weixing new material, xiongsu technology and GuDi technology was 15-25% in the first half of last year, and the gross profit margin of PVC profile business of conch profile was no more than 15% in the whole of last year. At present, the price of PVC is close to 9000, with an average price increase rate of 30% compared with that of less than 7000 last year. However, according to the fourth quarter of last year, the price increase rate of pipe profile manufacturers has not exceeded 15%. Although there are many types of pipe profiles and the formula of raw materials can not be known in detail, it can be inferred from the huge difference between the price increase of products and raw materials that the cost pressure of current pipe profile enterprises is huge.
So can the direct downstream transmit the cost pressure to the terminal? On this point, the current market understanding is different. Specifically, because the original order is general and the gross profit rate is low, the profile faces the biggest cost pressure and relatively difficult transmission. The original orders of pipes were not bad and there was room for price increase, but big manufacturers wanted to seize the market share, so the price increase was still very limited. The conduction of flooring products is relatively smooth, and the order situation is good after the price increase. The regional differentiation of soft products and membrane is serious. Generally speaking, the direct downstream is still facing huge cost pressure, but the internal differentiation is serious.
（2） Pipes and profiles: the sales and completion of real estate are good, but the long-term deposit policy is suppressed, and the growth rate of the total capital construction generally focuses on the actual progress of the old reform
From January to February of this year, the sales of real estate terminals (year-on-year + 104.9%, year-on-year + 23.1%) and completion data are good (year-on-year + 11.0%, year-on-year + 19.2%), and the new construction is relatively general (year-on-year + 64.3%, year-on-year - 19.4%). The demand for PVC brought by the completion of real estate in the second quarter is not bad. Recently, policies in the field of real estate appear frequently, but more for the purpose of maintaining "real estate does not stir up". The purpose is to restrict real estate companies from hoarding land and consumers from taking non residential mortgage loans to enter the real estate market, which has relatively limited short-term and medium-term impact on the real estate construction and decoration market.
From January to February this year, the growth rate of total infrastructure investment was average. It is generally expected that the government's deleveraging this year may slow down the growth rate of total infrastructure investment. However, in the government work report in March, it was clearly mentioned that 53000 old urban residential areas will be rebuilt this year (last year's target was 39000). At the same time, it was pointed out that a number of major transportation, energy and water conservancy projects will be implemented. Therefore, the growth rate of demand related to PVC downstream in the infrastructure end will not necessarily slow down.
（3） Flooring products: the U.S. real estate cycle drives the demand for PVC flooring to continue to improve
PVC floor demand is mainly driven by exports, which is one of the areas with the highest growth rate in the downstream of PVC in recent years. Last year, the annual export of PVC flooring products was 4.926 million tons, with a cumulative year-on-year increase of 22.2%; it is estimated that the annual export growth of PVC flooring will drive about 300000 tons of incremental demand for PVC powder Resin.
In January and February this year, the exports of PVC flooring products were 459000 tons and 350000 tons respectively, with a cumulative year-on-year growth rate of 46%, still maintaining a high growth rate. More than 50% of them were exported to the United States (248000 tons in January and 186000 tons in February), while the data in the figure below shows that the overall performance of real estate in the United States continues to improve.
According to our research, PVC flooring can smoothly raise the price after the price of raw materials rises, and the order situation is still good, and some manufacturers' orders have been arranged to May to June. Therefore, looking forward to the second quarter, as long as there is no comprehensive conflict between China and the United States, PVC flooring can still play a significant role in stimulating demand.
5、 Second quarter inventory analysis and strategy deduction
（1） Inventory analysis: after the end of March, social inventory will be gradually reduced, and the speed may be lower than that expected a year ago
At the end of last year, we predicted that this year's social inventory peak and accumulation time will be lower than in previous years. At present, the previous point has been basically verified. However, due to the unexpected stimulus of PVC price after the festival, the demand for replenishment in the downstream will be restrained by high prices. Therefore, the turning point of stock removal has not been confirmed in mid March.
As the direct downstream price increases are accepted by the terminal, it is expected that there will be an inventory inflection point from the end of March to the beginning of April. However, if the disk price drives the spot quotation to a high level all the time, the demand for speculative replenishment in the downstream will be suppressed, and only rigid demand procurement will be maintained, so the speed of inventory de stocking may be lower than that expected a year ago.
（2） Strategy deduction: how to maintain the strong shock
As mentioned above, the turning point of going to the Treasury is expected to appear in the next one to two weeks. Therefore, in terms of seasonality and driving, the forward-looking strategy still maintains a set of ideas. On the one hand, the supply and demand drive is still too much, and the inventory level of the downstream is not high, but the high price suppresses the speculative demand for replenishment in the downstream. Therefore, the possibility of unilateral trend surge is limited. Therefore, the overall idea of keeping long on the low and stopping profit on the high is relatively strong.
6、 Conclusion and investment suggestion
Fundamental point of view:
The overall supply and demand of PVC in the second quarter is still relatively strong, with no significant increase in the supply end chain, and the expectation of terminal demand is not bad. The main contradiction lies in whether the direct downstream cost pressure can be smoothly transmitted to the terminal. From the specific driving point of view, the current support lies in the strong cost and export volume, but the latter is expected to turn weak, and the current pressure lies in the direct downstream facing losses. In the future, the support lies in the fact that there is little new capacity and the stock devices are overhauled in a centralized way. The pressure in the future lies in the fact that after there is no speculative demand for replenishment in the downstream, the speed of going to the warehouse in the peak season may be lower than in previous years.
7、 Risk tips
Positive risk:
1. The supply of calcium carbide is seriously in short supply;
2. The supply of external offer can not be restored;
Bad risk:
1. The production speed of new production capacity is faster than expected;
2. After the price increase of pipe profiles, the orders decreased significantly;
3. The expansion of Sino US trade conflict affects the export of flooring products;
