Core view
Overall, the supply of PVC resin in the first quarter of 2022 was relatively stable, with weak domestic demand and strong export. Looking forward to the second quarter, the short-term epidemic disturbance will lead to the post superposition of demand, the possible seasonal weakening of exports, and the profit will be under pressure; In the medium and long term, the capacity growth on the supply side is not high, there is cost support, and there is steady growth and infrastructure expectation on the demand side. When the macro stimulus policy delayed by the epidemic situation overlaps with the improvement of PVC resin demand, PVC resin still has upward momentum.
Expected in the first quarter: the double control margin of energy consumption weakened, and the operating rate of PVC resin by calcium carbide method continued to increase. However, due to the tight balance of calcium carbide, it provided bottom support for PVC. PVC resin was priced jointly by cost, demand and expectation, and fluctuated widely in the range.
Poor expectations in the first quarter: India's anti-dumping duty on China expired in January and February, and there was strong demand for PVC resin in emerging countries such as Southeast Asia. China's export was better than expected, with an export of 254000 tons from January to February; 2. At the end of 2021, the central economic work conference emphasized steady growth, the government work report proposed that the annual GDP growth was about 5.5%, and issued a series of fiscal and monetary easing policies. The price of PVC futures took a roller coaster. However, due to the time lag in the implementation of the policy, the domestic demand for PVC resin was delayed, and the social inventory accumulated to the inflection point in mid March.
Focus in the second quarter: 1. It is estimated that the time lag from special bond issuance to infrastructure construction is about 3-4 months. Combined with the rhythm of fund issuance and project approval, infrastructure construction is expected to start from April to may without considering the impact of the epidemic; 2. Whether the export will continue needs to pay attention to India's anti-dumping policy and the cost advantage of PVC in the United States; 3. In the short term, the epidemic will affect the demand by affecting the logistics and downstream construction. The epidemic may have an impact on the infrastructure construction period of 1-2 months.
Prospect of supply and demand of PVC resin: PVC is tight in front and loose in the whole year. PVC production capacity is mainly put into operation in the second half of the year. There is little pressure on production in the first half of the year, and there is a high probability of going to the warehouse in the second quarter; From the end of the second quarter to the beginning of the third quarter, the supply increased intensively, and there may be accumulated reservoir pressure in the second half of the year.
Review of PVC market in the first quarter
Stage 1: strong expectations. In December 2021, the central economic work conference proposed to stabilize the economy. Marginal easing of monetary policy and fiscal policy, reduction of LPR interest rate and marginal easing of real estate; Capital construction projects are signed and started intensively, and the capital construction investment is huge. At this stage, PVC continued to rise under the condition of weak fundamentals.
Phase 2: weak demand. The downstream demand has not arrived yet, the superimposed calcium carbide cost continues to decline, and the social inventory accelerates to accumulate under the dual weakness of supply and demand. The expected tide has faded and the futures price is under pressure.
Stage 3: the rise of crude oil accelerates. Affected by the dispute between Russia and Ukraine, crude oil soared and chemicals rose; India's anti-dumping has expired, the demand for China has increased and the export volume has increased; Calcium carbide stabilized and rebounded, and the cost rose.
Stage 4: crude oil shock and epidemic disturbance. Russia and Ukraine eased, OPEC and Iran had loose supply expectations, oil prices were under pressure, and chemicals fell; The epidemic situation is repeated, and the storage, logistics and transportation in North China, East China and South China are limited. The marginal demand has weakened.
The margin of dual control of energy consumption is weakened, but there is still support
The dual control of energy consumption is weakened and the start-up is improved. The operating rate of PVC increased steadily in the first quarter, about 79.1%; The operating rate of calcium carbide in the upstream of PVC is about 77.8%. Although Lancan is disturbed by environmental protection from time to time, the operating rate is still 63.6%.
This year's demand for stable economy and steady growth does not put much pressure on dual control of energy consumption. The commencement in the first quarter is in line with the judgment at the beginning of the year. PVC will be subject to spring inspection in the second quarter. At present, the epidemic affects the demand, superimposes logistics congestion and poor delivery, and the spring inspection may come in advance.
Calcium carbide tight balance forms support for PVC
The important support of PVC comes from the tight balance of calcium carbide.
As a high energy consuming industry, the production of calcium carbide is limited, and the production plan in the future is limited. 130000 tons of Ningxia Yanxin have been put into operation, and the remaining production capacity to be put into operation during the year is about 1.48 million tons.
The downstream BDO capacity of calcium carbide is put into operation. During the year, the total capacity of BDO to be invested was about 1.132 million tons, which is concentrated in the second half of the year. The demand for degradable plastic PBAT will increase significantly, and the demand for BDO, a key raw material, will increase significantly.
Overall, the supply and demand of calcium carbide industry is still in a tight balance, and BDO will become an important source of incremental demand for calcium carbide.
The margin of dual control of energy consumption is weakened, but there is still support
The construction of Lantan was affected by environmental inspectors. In mid February, due to the influence of environmental protection inspectors, the construction of Lancan in Xinjiang declined; On March 21, the environmental protection supervision team fed back the supervision situation to Shaanxi Province, saying that it was not strong enough to curb the blind launch of "two high" projects (high energy consumption and high emission projects). On March 22, the central environmental protection supervision team carried out the supervision of Hebei, Jiangsu, Inner Mongolia, Tibet, Xinjiang and Xinjiang production and Construction Corps for about one month. Although the dual control of energy consumption is weakened, the environmental protection inspector continues.
Social inventory accumulation, inflection point emerging
Social inventory inflection point appears. Since the beginning of the year, the social inventory has been accumulating. The total inventory of the sample library in East and South China has accumulated from 156300 tons at the beginning of the year to 363500 tons on March 4. The inventory increased first and then decreased month on month, and the inventory accumulation rate reached the peak around the Spring Festival. The inventory has changed from increase to decrease in the past two weeks, ending the inventory accumulation for 11 consecutive weeks. At present, the total inventory is 341400 tons.
The sustainability of destocking is worrying. Recently, inventories have decreased slightly. Only from the data, there are signs of improvement in total demand. However, it is mainly due to the good export, the recent repeated epidemic, the weakening of the margin of domestic demand, and it is difficult to continuously reduce the inventory.
Limited new PVC production capacity
In the first quarter, only 100000 tons of the 200000 tons of Dezhou Shihua were put into production, and the process was Jiang Zhongfa.
Throughout the year, there was little pressure to put into operation in the first half of the year, mainly in the second half of the year, with an additional effective capacity of about 910000 tons.
Exports remain strong
Overseas prices are high, and China's exports are good. From January to February 2022, the export volume of PVC powder was 253600 tons; The same period last year was 280000 tons. The year-on-year decrease was about 10%, but it was significantly higher than the export volume in the same period from 2017 to 2020. In the first quarter, the overseas supply was tight, the crude oil price rose, and the increase in cost brought about an upward price. Our products have price advantages.
Emerging economies drive global PVC demand. From January to February, China's exports to Vietnam, India, Egypt, Russia, Uzbekistan and Bangladesh accounted for 52% of the total exports. The investment of new economies in infrastructure, real estate and other fields grew rapidly, becoming the main force driving the incremental demand for PVC.
The import volume is low. From January to February, the import volume of PVC powder in China was 42700 tons. Mainly from Taiwan, China (61.3%), Japan (27.9%), and the United States (3.67%).
The PVC floor outlet remains high. From January to February, the export volume was 866000 tons, an increase of 6.91% year-on-year.
Developed economies such as Europe and the United States are major importers. The United States remains the largest importer, accounting for 54.05%. Different from the export structure of PVC powder, the demand for PVC flooring mainly comes from developed economies such as North America and Europe (about 78%), which has a high correlation with its existing housing consumption.
The macro policy was loose and the data stabilized, but the demand did not rise
Since the beginning of the year, the state has issued a series of macro policies to reduce interest rates, relax purchase restrictions and reduce down payment; Centralized construction of infrastructure projects, etc. Macroeconomic data have improved to some extent.
The data has stabilized and the demand has not yet arrived. In terms of data, infrastructure investment and real estate data have improved. Investment in infrastructure and real estate development is the leading indicator of PVC demand. The current weak demand comes from the sharp decline in infrastructure and real estate investment in the early stage. When the investment in infrastructure and real estate development turns positive and continues to grow, the demand for PVC will be reflected in the follow-up.
In the second quarter, we should stick to the essence
Key point 1: when will infrastructure start? How much PVC demand
Infrastructure is becoming more and more important. On March 5, the government work report proposed that the GDP growth target should be about 5.5%. Before the outbreak of the epidemic and the control policy, the responsibility of infrastructure construction will be more important to achieve this goal.
The macro stimulus policy is worth looking forward to. Since January this year, a series of loose policies have been introduced, which has played a certain role. At present, the introduction of the new macro loose policy may have concerns. After the impact of the epidemic weakens, the macro policy will play an important role in promoting.
Abundant capital for infrastructure construction: in 2021, special bonds were placed behind and 1.4 trillion special bonds were carried forward to this year; In 2022, special bonds increased by 3.65 trillion, with special bonds in front. As of March 22, the issuance of local bonds exceeded 1.5 trillion, about twice that of the same period last year. Many places began to announce the issuance plan for the second quarter. Capital construction funds are generally abundant.
Infrastructure projects are ready: the late projects of last year and the pre projects of this year are collected to this year. The projects are subject to centralized approval in the first quarter, and the project reserves are sufficient. From the perspective of investment direction, the proportion of new special bonds used for infrastructure investment has increased significantly this year, and the construction of affordable housing, urban renewal, Rural Revitalization and other fields have become the focus.
Infrastructure lag: the lag from the issuance of special bonds to infrastructure is 3-4 months; Infrastructure construction and PVC demand are basically synchronized; The time lag from the approval of infrastructure projects to the commencement of construction is 7-8 months. Combined with the funds and projects in the second point, the infrastructure is expected to start from April to May. Considering the potential impact of the epidemic on the construction progress, it is expected to be postponed to May June.
Demand increment: from January to February, the growth rate of generalized infrastructure investment was 8.6%. Assuming that the growth rate of infrastructure investment this year was 8.5% 2%, it is roughly estimated that the PVC demand increment brought by infrastructure is about 1.5% - 2.0%.
Key point 2: can exports continue? Focus on two variables
Variable 1 affecting subsequent exports: does India carry out a new round of anti-dumping (add) against China?
India's anti-dumping against China expired in February this year. Referring to history, India's anti-dumping against China expired in January 2014, but then India announced the imposition of anti-dumping duty again in May. Under the time window of temporary cancellation of anti-dumping duties, exports have improved significantly. From the data, China's export volume to India from January to February was 28400 tons, lower than 45000 tons in the same period in 2021. The cancellation of anti-dumping duties makes the export orders in February and march better. Due to the continuity of exports, the data will be reflected in the export volume from March to April.
Considering the current situation of energy shortage and high cost of raw materials in India, India has insufficient domestic production capacity and high prices. It is unlikely to levy anti-dumping duties again in the short term. Even in 2021, when anti-dumping duties are levied, China exported 304100 tons to India.
Variable 2 affecting subsequent exports: the competitive advantage of U.S. exports?
US exports to India are limited. In the past three years, the export volume of PVC from the United States to India is not large, and 165000 tons have been exported to India in the past three years.
The United States has no cost advantage in the short term. The international oil price is high, the loss of olefin units is reduced, and the supply of PVC is also reduced. The current situation of crude oil shortage in the United States is not expected to be alleviated in a short time.
Overall, China's export structure is good, mainly exported to Vietnam, India, Egypt, Russia and other emerging market countries, which are relatively scattered. It can effectively weaken the impact of India's re imposition of anti-dumping duties on China's exports; At present, the oil price is high, and the cost advantage of American devices is not high; Exports in the second quarter are still resilient. However, the arrival of rainy season in India may appropriately reduce the import of PVC in the second quarter.
Key point 3: what is the impact of the epidemic?
Short term impact:
Upstream shipment blocked. On the supply side, at present, the start-up of PVC upstream enterprises is not affected much. On March 17, the overall starting load of PVC was 81.5%, with a month on month increase of 1.01 percentage points. Affected by logistics, the delivery of upstream factories is blocked, and the inventory of some upstream factories is accumulated. For example, East China and other places have implemented control, and some warehouses have stopped all in and out of the warehouse.
Downstream construction is blocked. According to the investigation of Centennial construction network, the epidemic has a great impact on the project construction. Taking Fujian Province as an example, the urban area of Quanzhou is mainly closed and controlled, the engineering projects in Fengze District and Licheng District are basically shut down, and all labor personnel are closed and isolated. Traffic control was strengthened and logistics was basically at a standstill. The traffic and logistics in East China, North China and South China are controlled, the construction of terminal projects is affected and the demand for replenishment of downstream products is also restrained.
Medium and long term impact:
Negative feedback of upstream supply. If the epidemic continues and the downstream demand continues to weaken, it may lead to the decline of upstream construction and the advance of spring inspection.
A concentrated outbreak of downstream demand after the end of the epidemic. The affected demand does not completely disappear, but lags behind. When the haze of the epidemic disappears, all localities and projects will strengthen their efforts to catch up with the backward progress, which may bring a market similar to the "retaliatory resumption of work" in Shenzhen on Monday.
On the whole, the epidemic has an impact on PVC. In the short term, it will affect the demand by affecting logistics and downstream construction; The upstream demand has a weak or long-term negative impact on the downstream demand; Finally, when the impact of the epidemic weakens, all localities will rush to work, resulting in the centralized release of demand.
