PVC Fundamentals Likely to Weaken, Mounting Market Pressure
Preface: Since August, the PVC market has fluctuated downward, mainly because after the gradual digestion of bullish macroeconomic factors, weak fundamentals have become the main price driver again. Entering September, the market has continued its weak trend. With the commissioning of new units and the release of new capacity, fundamentals were expected to remain weak. It is expected that the spot market will still face significant pressure in Q4.
As fundamentals become the main price driver, PVC prices returned to their weak trend.
Since August, the PVC market has basically been in a state of fluctuating downward, with the average price gradually moving down. As of September 10, the price of SG-5 in East China stood at RMB 4,710/mt, a decrease of RMB 210/mt or 4.27% compared with RMB 4,920/mt on August 1. The market price decline is mainly due to the following: after the impact of the anti-involution sentiment in July, the period from August to mid-September has been a lull in macro policies, with insufficient support from the macro side. The market has thus returned to fundamental logic, while the fundamentals of PVC underperform. With the release of new PVC capacity in August and September, the market supply remained high. As for the demand, China’s domestic demand underperformed. Affected by the news of India’s final anti-dumping ruling, exports have also been impacted. Thus, the PVC social inventory piled up, weighing on the spot market.
In Q4, the oversupply may continue, and the spot market may face higher pressure.
On the supply side, with the release of new capacity, the market supply may remain high.
Generally, there are some PVC units undergoing maintenance in Q3, while maintenance activities will likely decrease in Q4. Most of the maintenance is routine, which has a relatively limited impact on the operating rate of existing capacity. With the release of new capacity, the market supply may remain high. The 500kt/a capacity at Wanhua Chemical (Fujian) was fully released in August. The 400kt/a new units at Tianjin Bohua Development are expected to run at higher loads in September. The 300kt/a unit at Zhejiang Jiahua Energy Chemical is planned to have a trial production in September. In addition, the 200kt/a unit at Qingdao Haiwan and the 300kt/a unit at Gansu Yaowang Chemical are also planned to have a trial production in September. Thus, in Q4, most new units may run at higher loads, intensifying the supply pressure.
The improvement in China’s domestic demand may be limited, while there are uncertainties in the export market.
Approximately 60% of PVC is used in real estate-related fields. In recent years, the real estate market has been in a period of adjustment, providing insufficient support for PVC demand. The market was in a seasonal slack season from July to August, with sluggish demand. Since September, the impact of the slack season has weakened, and domestic demand has recovered slightly. However, due to the persistent weakness of the real estate market, domestic demand is not expected to see significant improvement. As for the export market, India’s anti-dumping duty may take effect at any time, which will potentially impact PVC exports to India. As a result, exports are expected to weaken in Q4.
PVC inventory may pile up further, intensifying the supply-demand mismatch.
With the release of new capacity, the market supply may remain high. Considering the impact of India’s anti-dumping measures, Q4 exports are likely to be lower than those in Q3. Even if domestic demand registers a year-on-year increase, the monthly ending inventory of PVC in Q4 may still be on an upward trend.
On the whole, the oversupply pattern of the PVC market is expected to continue in Q4, with weak market expectations. The overall supply-demand fundamentals will likely exert pressure on the market. However, attention should still be paid to the following factors for the specific market performance. 1. The actual commissioning progress of new units: If the commissioning falls short of expectations, the supply-side pressure may ease. 2. The specific implementation time of India’s anti-dumping duty: If the implementation is delayed, Q4 exports may perform better than expected. 3. Changes in macro policies: There will still be important meetings held in the subsequent period. 4. Long-short games under the high open interest of PVC futures.
China PVC Powder Market Monthly Supply-Demand Balance
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