Positive Expectations and Risks Exist in PVC Market
Preface: China’s PVC powder market prices in January and February were affected by positive expectations and weak fundamentals. Entering March, demand recovery expectations and beneficial policies issued by NPC&CPPCC are expected to support the PVC powder market price. However, high inventory and risks of the Fed’s interest rate hike may restrict the rebound of PVC powder prices.
From November 2022, China’s PVC powder market prices fluctuated upward. After the Spring Festival holiday, PVC powder market prices first dropped caused by high inventory pressure and then rose supported by expectations for demand improvement.
Supply: Industrial operating rate remains high and new units will be put into operation.
The PVC power industrial operating climbed gradually from October 2022 and rose to around 80% at the beginning of 2023. According to SCI, as of March 2, 2023, the PVC industrial operating rate was 79.94%, up 0.28 percentage points W-O-W. Most PVC powder producers held operating rates stable. In addition, new units will be put into operation gradually. The 400kt/a capacity at Guangxi Huayi New Material was released gradually in H2 February. The 400kt/a unit at Wanhua Chemical Group is planned to have a trial production in March or early April.
Demand: The recovery of PVC demand is less than expected.
Downstream enterprises shut down units or cut operating rates caused by the Spring Festival holiday and cold weather in winter. After the holiday, downstream enterprises revive production amid the economic recovery. The Spring Festival in 2023 is earlier than usual years, so the seasonal recovery after the Spring Festival would have been stronger than usual. However, according to the actual downstream operating rates, the production recovery at downstream enterprises is relatively slow at present, leading to the demand recovery being less than the seasonality.
According to SCI, operating rates at medium and large-scale downstream enterprises have rose to 60%-70%, while operating rates at small-scale remain relatively low. In addition, most of them have feedstock and product inventory. Though operating rates at a couple of downstream enterprises are passable, they show weak interest in purchasing PVC powder caused by high feedstock inventory and weak orders.
The production and sales of PVC powder are separated obviously. The main production area is concentrated in Northwest China such as Inner Mongolia and Xinjiang, while the main consumption area is in North China, East China, and South China, among which East China and South China are the two largest consumption areas. Thus, PVC warehouse inventory changes in East China and South China, which are determined by market arrivals and downstream delivery, can show supply and demand to some extent.
Up to March 2, 2023, the inventory of sample warehouses in East China and South China totaled 454.1kt, up 2.16% W-O-W, and 24.92% Y-O-Y. The inventory piled up in line with stable market arrivals and underperformed delivery. The daily delivery quantity at some warehouses was only about 50% of the normal level. High feedstock inventory at downstream producers dragged down the delivery quantity.
The demand recovery should be concerned. The new startup data in the real estate industry reached a peak in 2020 but plunged in 2021 and 2022. Though operating rates at construction sites keep climbing backed by related policies, the new startup data remains low. According to China Index Academy, from January to February 2023, the sales performance of the top100 China real estate enterprises totaled 984.11 billion yuan, down 4.8% Y-O-Y. The Y-O-Y drop rate moved down notably. In February 2023, the sales performance of the top100 China real estate enterprises increased by 35.1% M-O-M, and 28.5% Y-O-Y. Thus, whether sales performance promotion can give support to the new startup data should be concerned.
Forecast: There are expectations for economic recovery, while players should keep an eye on high inventory and risks of the Fed’s interest rate hike.
According to the State Statistical Bureau, the PMI index of February reached 52.6%, up 2.5 percentage points M-O-M. Some of the key indicators, such as new orders, production, employment, and business expectations, were above 50%. The increased PMI index shows that China’s economy keeps reviving, which may prop up market trading.
In terms of real estate, as of February 28, 40 cities have introduced various policies to stabilize the real estate industry, most of which issued housing subsidies, increased the loan limit of provident funds, canceled or relaxed restrictions on purchases, and implemented the “transfer of second-hand housing with mortgage”. At the same time, some cities issued large vouchers to promote real estate sales. In addition, with the launch of the policy of ensuring timely deliveries of presold homes, “16 financial Regulations”, dynamic adjustment mechanism of housing loan interest rate, etc., China’s real estate industry has warmed up, especially in the first and second-tier cities. Close attention should be paid to the data in the real estate industry in March.
There are expectations for demand improvement amid demand peak season in March and April. Thus, site construction is likely to continue to resume. As long as expectations for demand improvement exist, the PVC price will not fall significantly.
However, the Fed’s interest rate hike and appreciation of the U.S. dollar can dent commodity market prices. Moreover, high PVC powder inventory may restrict the increment in the PVC market price.
To sum up, there are expectations for resumption in the PVC powder market in March, but high inventory and risks of the Fed’s interest rate hike will possibly weigh on the rebound of PVC powder prices.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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