China PVC Demand from Real Estate Industry Underperforms
Introduction: In recent years, China’s real estate market has seen a downward trend, dragging down the related commodity market. In the next few years, the construction and supply of affordable housing will likely be the main model of real estate development, and it is expected that the overall real estate investment will hover at lows. Thus, the PVC demand from the real estate industry may remain soft.
The Chinese real estate market peaked and began to decline in 2020, with a gradual downturn in the following years. Since 2022, YoY data for new housing starts, real estate investment, and real estate completions have all turned negative, maintaining a significant negative growth trend. Only in 2023 did completion areas see a temporary improvement, supported by policies aimed at ensuring timely deliveries of presold homes. Currently, new housing starts have fallen to pre-2008 levels.
The evident weakening of the real estate market has dampened demand for building materials such as rebar, cement, PVC, glass, and aluminum, marking low demand as the primary reason for the weak fundamentals in related commodity industries over the past two years.
PVC powder, one of the five major general-purpose plastics, is primarily used to produce rigid products like pipes, fittings, profiles, doors, and windows, as well as soft products such as films, wires, and cables. Approximately 60% of its demand is related to real estate. As the real estate market has progressively weakened in recent years, PVC powder demand growth has also significantly slowed. According to estimates by SCI, PVC demand will possibly reach 20,756.5kt in 2024, with a 5-year CAGR of only 1.01%. Overall real estate-related demand is experiencing negative growth, and the operating rates of pipe and profile industries have declined to a steady range of 30%-50%. Growth in demand primarily comes from non-real estate sectors like packaging, cables, toys, and healthcare. However, these sectors account for a smaller share, providing limited support to overall demand.
Caustic soda also has partial demand from the real estate markets. Its main applications are in the alumina, paper, chemical, textile/dyeing, renewable energy, and pharmaceutical industries. Although the alumina industry is the largest downstream application for caustic soda and some of its demand indirectly links to real estate, the impact is relatively minor. According to SCI, caustic soda demand is expected to reach 37.9 million tons in 2024, with a 5-year CAGR of 2.73% from 2020 to 2024.
Over the next five years, the real estate sector in China is anticipated to operate at low levels, with inventory reduction as a primary focus. Under strict control of new projects, new housing construction is likely to grow at a low rate, with monthly new housing starts averaging around 65 million square meters in 2025, slightly down from 2024. Growth is expected to gradually resume in 2026, with monthly average new housing starts reaching about 80 million square meters by 2030, approximately 42% of peak levels in past years.
Under the new real estate development model, affordable housing construction and supply will be the main development path, while traditional commercial real estate models will gradually diminish. State-owned capital is expected to become the primary source of additional supply in the real estate market. Real estate investment is expected to fluctuate at a low level, with investment likely turning positive in 2025, with a projected growth rate of around 4.8%.
The real estate completion area in 2025 is expected to be significantly affected. Considering the 2-3 year timeframe from housing start to completion, completion areas will likely remain low from 2024 to 2027, impacting materials related to the later stages of real estate.
In summary, the real estate market is expected to continue operating at low levels, with demand for highly real estate-dependent commodities likely to remain suppressed. PVC demand is anticipated to grow slowly, while caustic soda demand, less impacted by real estate, should continue its steady growth.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
Please click "Read more" for the full article.
