Introduction
In the first half of the year, the price center of PVC resin powder in the market shifted downward year-on-year, mainly due to increased social inventory pressure and the addition of new production capacity in factories. There was no significant improvement in domestic demand, and the specific price trend was to first consolidate horizontally, then rise and then fall. In the second half of the year, the macro environment at home and abroad continues to improve. The Federal Reserve of foreign countries is expected to cut interest rates in the fourth quarter, and the macro atmosphere in China remains relaxed. The supply-demand contradiction has not changed much, and it is expected that the price center will shift upwards in the second half of the year compared to the first half.
In the first half of the year, the PVC resin powder market first consolidated horizontally, then rose and then fell again
In the first half of the year, the PVC resin market first stabilized horizontally, then rose and then fell. From January to April, prices stabilized horizontally, and in May, prices fluctuated and rose. In the first half of 2024, PVC prices began to fluctuate and rise in May, reaching their highest point in the first half of the year.
In the first half of 2024, the average self pickup price of PVC resin SG-5 in China was 5740 yuan/ton, a decrease of 5.7% compared to the same period last year. The high point of PVC powder market price occurred in mid to late May, with the highest average self pickup price of SG-5 polyvinyl chloride resin in China reaching 6224 yuan/ton, and the lowest point occurring in early April, with the lowest average self pickup price of SG-5 polyvinyl chloride resin in China reaching 5592 yuan/ton. Specifically, the basic performance of PVC resin was weak from January to April, with a significant accumulation of social inventory during the Spring Festival period. In addition, the demand recovery from March to April was less than expected, leading to weak and volatile market prices. In May, there was a certain improvement in the fundamentals of PVC powder, and the spring inspection led to a decrease in supply. Downstream PVC soft product enterprises on the demand side increased their orders, and the market entered a stage of relatively balanced supply and demand. At the same time, the combination of domestic policies, including the issuance of super long special treasury bond, the reduction of provident fund loan interest rate, the cancellation of the lower limit of commercial loan interest rate, the reduction of the down payment ratio, and the government can order commercial housing, has been implemented in a centralized manner to promote the improvement of the macro atmosphere, the strength of real estate related commodities, the rise of PVC futures, and the rise of spot goods. In June, demand entered the off-season, downstream orders slightly decreased, production weakened, and purchasing enthusiasm decreased. At the same time, June was in a policy window period, and the macro atmosphere weakened, with prices falling.
The main factors affecting the operation of the PVC resin market in the first half of the year are micro and macro aspects. From a micro perspective, the supply of PVC powder exceeded demand in the first half of the year, and high inventory suppressed the low price operation of the spot market. However, a bullish macro perspective will lead to a temporary rebound in spot prices.
Supply and demand fundamentals: PVC resin powder market supply exceeds demand, and social inventory remains high
Supply side: It is estimated that the cumulative production of polyvinyl chloride from January to June will reach 11.7584 million tons, an increase of 5.09% compared to the same period last year. The reason for the increase in production is, on the one hand, that the operating capacity of the existing production capacity was slightly higher than the same period last year. The operating load rate of the PVC powder industry was mostly unchanged from January to April compared to last year, and the industry's operating load rate increased from late April to the end of June compared to the same period last year. The change in operating rate is related to profits to a certain extent. The industry suffered severe losses from January to April, and the operating load rate did not change much year-on-year. From late April to the end of June, industry profits gradually recovered, and the operating load rate rebounded year-on-year. On the other hand, there was some new production capacity added in the first half of the year, but the total amount was not large. In the first half of the year, 600000 tons of equipment were put into operation (Zhejiang Zhenyang 300000 tons of ethylene PVC production equipment+Shaanxi Jintai Phase I 300000 tons of calcium carbide production equipment).
From the perspective of imports, the import volume of PVC powder in the first half of the year decreased year-on-year, with an estimated import volume of 125500 tons from January to June, a decrease of 114300 tons from the same period last year. However, due to the low import volume base, the overall impact of import reduction on the market is limited.
On the demand side, the total consumption of PVC resin in China is estimated to be 10.1956 million tons in the first half of 2024, an increase of 2.85% year-on-year. The demand for PVC hard products is relatively weak, and orders for films, sheets, medical and other products are still acceptable. Since 2024, the real estate market has continued to be weak, and orders for PVC hard products remain poor. Some PVC pipe and profile companies have reported lower production than the same period last year, but consumer products have performed well, driving demand to maintain a slight increase. The export volume of PVC powder remained high in the first half of the year, with a year-on-year increase. Especially in late February, a wave of centralized procurement in India drove a significant increase in the export volume of PVC resin from March to April compared to the same period last year. In May to June, with the rapid increase in freight costs, the export order acceptance of PVC resin weakened. Overall, the demand for PVC powder increased moderately in the first half of this year, with a slight increase in relative supply, and the inventory in the PVC industry remained high.
Overall, in the first half of the year, the domestic production+import volume of PVC powder exceeded the domestic demand+export volume. In addition, there were 1.06 million tons of PVC resin powder waiting to be digested in the initial inventory. Therefore, the overall performance of the first half of the year was that inventory continued to remain high, with supply exceeding demand, ending inventory increasing, and spot prices operating under pressure. However, PVC powder was mostly in a loss making state in the first half of the year, with an overall low valuation, which also provided some cost support for the bottom of PVC resin powder prices.
Profit: Most of the time, a single product is at a loss, supporting the bottom
In the first half of 2024, the supply of PVC resin powder market exceeded demand, and the fundamentals were under pressure. The spot market was basically in a low range of volatility, with PVC resin being suppressed by high inventory above and supported by the cost side below. In the first half of the year, PVC powder products were still in a loss making state for most of the time, and the Inner Mongolia region began to slightly turn losses in May. From the perspective of chlor alkali PVC powder integration, the integration was in a slightly profitable state in the first half of the year, which provided some support for the operating load rate of the PVC powder industry in the first half of the year.
From the perspective of market operation logic in the first half of the year, the valuation of PVC powder products generally provides bottom support and does not directly drive the market. In May, PVC powder rebounded and rose under macro support, and the undervaluation of PVC powder products became the added support. However, during the macro empty window period in June, PVC resin returned to its fundamental logic, and the improved profitability of PVC single products and integrated products turned into bearish factors.
So in the first half of the year, the basic operation logic of the PVC powder market mainly revolved around valuation and supply and demand, and there were no unexpected changes in valuation and supply and demand as a whole. Therefore, the market was in a fluctuating pattern from January to April. However, driven by macro factors, PVC powder also experienced a relatively significant rebound and upward trend in May. After the macro sentiment was digested, PVC resin returned to its fundamental logic in June.
Macro level: The interweaving of long and short positions and the impact of macro expectations on market sentiment
In the first half of the year, the macro economy was still in a transition between strong expectations and weak reality. The loose macroeconomic policies drove commodity prices higher in May, but during the policy gap period, weak macro data led investors to return to reality.
In the first half of the year, the situation of PVC powder supply exceeding demand further deepened, and overall inventory increased year-on-year. The fundamentals continued to be weak, and prices mostly fluctuated in the lower range. Although macro policies supported market sentiment in May and led to a wave of price increases, their influence did not last for a long time, and the market continued to return to fundamental logic, with prices falling back.
In the second half of the year, the macro atmosphere at home and abroad may improve compared to the previous period, which may provide some support for the overall commodity market. However, the fundamentals of PVC powder are expected to remain weak, and new real estate construction data may remain in a low range. The downstream demand for PVC powder may still be weak, while the overall supply is relatively abundant, and inventory may continue to be high. Fundamentals may become a limiting factor for price increases. The market price of PVC resin may show a strong fluctuation trend in the second half of the year, and the price center of PVC resin may shift upwards compared to the first half of the year.
Macro aspect: Entering a proactive replenishment cycle, the macro atmosphere at home and abroad may improve somewhat
The inventory cycle of domestic goods in the first half of the year can be basically determined to enter a state of active replenishment. The atmosphere of the commodity market in the second half of the year may improve compared to the previous period. With policy support, the growth rate of domestic infrastructure and real estate is expected to improve compared to the previous period. Domestic consumption is expected to maintain a mild recovery trend, and the overall domestic macro atmosphere is expected to improve. There is also an expectation of further policy easing in the second half of the year. In addition, the Federal Reserve is also expected to initiate a rate cutting cycle in the fourth quarter, and there are expectations of an improvement in the macroeconomic atmosphere abroad. Macro factors may become the driving force behind price increases in the second half of the year.
Supply side: Production capacity will increase in the second half of the year, but there may be an increase in maintenance
In May of the first half of the year, a new production capacity of 300000 tons/year of PVC powder has been put into operation, and the release of this new production capacity is more reflected in the second half of the year. In addition, an additional 800000 tons of PVC production capacity is planned to be put into operation in the second half of the year, with Shaanxi Jintai's 300000 tons/year plant production to be released in the second half of the year, while the other 500000 tons/year production capacity will be put into operation at the end of the year, with limited impact on production in the second half of the year.
Although more production will be released in the second half of the year for newly put into operation devices, it is expected that the amount of maintenance losses in the second half of the year will increase compared to the first half. Most PVC powder companies require at least one annual maintenance. In the first half of the year, a production capacity of 11.44 million tons/year has completed the annual maintenance. Apart from the current long-term shutdown of 2.13 million tons/year production capacity, an additional 14.33 million tons/year of PVC resin production capacity will complete the annual maintenance task in the second half of the year. Therefore, it is expected that the loss of enterprise maintenance in the second half of the year will be slightly higher than that in the first half.
In terms of demand: domestic demand is expected to continue to be weak, and there is uncertainty in exports
The overall demand for PVC powder continued to be weak in the first half of this year, mainly due to about 60% of the demand being applied to real estate related industries. The performance of the real estate industry has remained weak in recent years, and there has been no significant improvement in 2024. Completion data has also weakened since entering 2024, and the demand for PVC powder has been in use since the middle of housing construction. The weakening of completion will drag down the demand for PVC powder. For the second half of the year, it is expected that the real estate market will continue to be weak, with poor performance in new construction data. The demand for PVC resin powder in the real estate industry will still be difficult to significantly improve.
From the perspective of export demand, since the expiration of India's anti-dumping policy on PVC powder in China, the export volume of PVC resin powder in China has increased. India has also become the largest trading partner in China's exports, accounting for more than 50% of PVC resin exports from January to May. The export volume of domestic PVC powder is expected to increase in the first half of the year compared to the same period last year. However, in the second half of the year, as the implementation of BIS certification in India gradually approaches, the export of domestic PVC powder to India may be restricted starting from September. If this policy is not extended, the quantity of PVC powder exported from China to India may decrease before domestic PVC powder enterprises obtain certification.
Based on the above analysis, there may not be much change in the supply of PVC powder in the second half of the year, with little improvement in domestic demand and a risk of reduced exports. The overall supply and demand fundamentals of PVC powder are still weak, but from a cyclical perspective, the second half of the year is in the stage of active replenishment, and the overall commodity market atmosphere may improve. There is still an expectation for further easing of domestic policies, and there is a possibility of improvement in the macro environment abroad. The price of PVC powder may rise due to macro factors. However, due to the difficulty in improving the supply of PVC powder fundamentals, the price rebound is highly limited. It is expected that the fluctuation range of the national self pickup average price of PVC powder in the second half of the year will be between 5650-6200 yuan/ton.
