PVC Price Fell After Increment in 2022 H1
Preamble: PVC prices mounted up at first but then dropped in the first half of this year, with bullish expectations and weak market performance mixed. In H2, 2022, PVC fundamentals are reckoned to improve with the economy stabilizing and feedstock costs going up. But the strength of demand recovery is indeterminate. SCI predicts that PVC prices will mostly edge down in the second half of this year.
1. H1, 2022 PVC Prices Rose but Declined Later
China’s PVC market prices mounted up at first but then dropped in H1, 2022. Therein, PVC prices climbed gradually in Q1 but declined continuously in Q2. Taking SG-5 in East China as an example, its self-delivery prices averaged RMB 8,737/mt in H1, 2022, which rose by RMB 183/mt or 2.14% from the same period of 2021. Its prices recorded the highest level of RMB 9,417/mt in early April, while they registered the lowest level of RMB 7,360/mt at the end of June. The price spread reached above RMB 2,000/mt.
The monthly average price of PVC between January and April lingered above the past five-year average level. High crude oil prices gave wings to PVC prices from the cost side. Besides, the industry prosperity cycle didn’t end even if PVC prices dropped from the peak of last year. Deals increased steadily, buoying PVC prices from the demand side. However, PVC market prices and its monthly average price lost ground from May to June, which dented the confidence of market players.
2. H1, 2022 PVC Futures Price and Spot Price Spread Narrowed
The futures prices and spot prices presented a similar trend in the first half of this year. PVC industry witnessed overwhelming off season and weak peak season, indicating that demand performed weaker compared with last year. Thus, the gap between the futures price and spot price shrank a lot. Taking SG-5 in East China as an example, the futures and spot price spread averaged RMB 58/mt in H1 of 2022, down RMB 107/mt from RMB 165/mt recorded in H1 of 2021. The largest price spread was RMB 239/mt in end-April, and the smallest spread was RMB -149/mt in mid-February.
From the perspective of driving factors, the overall trend of the PVC market in the first half of the year can be divided into two stages. The first stage is the first quarter, during which PVC prices grew on the back of steadily advanced economy and firm crude oil prices. The second stage is the second quarter when PVC prices lost ground because of weak demand and interest rate hikes by the Federal Reserve. The specific analysis is as follows:
3. Q1 PVC Prices Spiraled Up with Stable Growth in Economy and Crude Oil Values
In Q1, the performance of PVC fundamentals was average, but the prices mounted up due to the noticeably appreciated crude oil values. Market players held a cautiously optimistic attitude.
In the first quarter, measures to stabilize growth continued to be introduced, and monetary strategy continued to be loose. M2 growth continued to expand, and deposit reserve ratio cuts and interest rate cuts were announced one after another. The real estate easing strategy has been gradually introduced, and measures such as the cancellation of purchase restrictions and the reduction of the first house loan ratio have emerged successively. Expansionary macroeconomic strategies have injected confidence and impetus into the financial and commodity markets.
In addition, under the influence of geopolitics, international crude oil prices stood at $100/bbl at the beginning of March, and the Brent oil price surged to a maximum of $139/bbl on March 7. Later, international crude oil prices fluctuated at $100/bbl in Q1 and boosted energy and chemical products.
PVC fundamentals were average in Q1. PVC output totaled 5,630kt between January and March, down 3.43% Y-O-Y. PVC export volume stayed high because China’s domestic demand was sluggish. PVC demand volume was 4,720kt from January to March, down 3.87% Y-O-Y. Social inventory mounted up and recorded high in early March, but then the inventory declined. High crude oil prices and inventory digestion prompted the March monthly average price of PVC to realize the highest level in the first half of 2022.
4. Q2 PVC Prices Were Pulled down by Weak Demand and Fed’s Interest Rate Hike
PVC industry was under traditional demand peak season in Q2, but demand turned weaker than expected, leading the market to shift from bullish transaction expectations to weak transaction reality. PVC prices lost ground.
The fundamentals of supply and demand in the first quarter were in line with expectations, and the performance of inventory was similar to that of previous years. But the inventory showed a lot of differences in Q2. According to the seasonal law, the second quarter belonged to the traditional peak season, during which the inventory usually fell rapidly. However, the consumption of PVC inventory was very slow in the second quarter of this year. Inventory even climbed from May to June, which resulted from weak demand. According to SCI, PVC demand volume was 4,950kt in Q2, down 11.92% Y-O-Y. PVC output dropped by 0.7% Y-O-Y to 5,670kt in Q2 because of concentrated turnarounds.
China’s PVC export volume decreased in Q2. International PVC market prices fell from highs in April. For PVC of Taiwan Formosa, its FOB China price dropped from $1,250/mt to $1,080/mt. Meanwhile, China’s PVC prices decreased at a quicker rate than international prices, which opened the PVC export arbitrage window. But China’s PVC exports decreased after reaching a high level of 278kt in April.
In addition to the negative fundamentals, the interest rate hike by the Fed in June also had a large impact on PVC market. Due to the high inflation rate in the United States, the Fed raised interest rates by 75 basis points more than expected in June. Market players worried about the risk of global economic weakness, and the overall commodity was under pressure. Wenhua index fell continuously, with soft PVC fundamentals superimposed, PVC prices fell faster in June.
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