What Happened to PVC Market in Q3 and How will It Develop in Q4?

What Happened to PVC Market in Q3, and How will It Develop in Q4?

Highlights

In China’s PVC market, prices of SG-5 fluctuated within RMB 6,610-6,890mt in Q3, 2019. The PVC supply and demand volume increased, and its social inventory declined rapidly. The profits from the PVC production remained at a high level. However, it is predicted that PVC supply-demand fundamentals will weaken. Amid complex macro environment, PVC prices are expected to head down in Q4, 2019.

In Q3, the overall PVC operating rate mounted up gradually, so the PVC supply increased. But the demand for PVC entered peak season, so the imbalance between supply and demand was not obvious. The PVC social inventories in East China and South China remained in a downtrend, and those in August and September were cut more rapidly. The Sino-U.S. trade friction affected the PVC futures market, and the environmental protection inspection caused output restriction of downstream finished products in North China, affecting the PVC market in August. Then in September, the strict output restriction policy didn’t appear, and the “black swan” incident in Saudi Arabia underpinned the PVC market.

The main fundamental indicators are as follows:

The operating rate increased, leading to an increase in PVC supply.

The PVC operating rate moved upwards in Q3, so the output loss declined. The average operating rate in the PVC industry was 78.14% in Q3, up 1.75% Q-O-Q. The loss volume of output caused by the maintenance was 584.3kt in Q3, down 52.1kt Q-O-Q. SCI predicts that PVC output will be 4,846.7kt in Q3, up 178kt Q-O-Q.

The PVC inventory declined quickly.

The PVC supply volume increased, but the PVC industry, especially in East China and South China, entered peak season, and the PVC export volume mounted up. Besides, the PVC inventory reduced more quickly. Thus, the imbalance between supply and demand was not notable.

Profit from producing PVC kept favorable.

The profit from producing PVC remained at an annual average level in Q3. In August, calcium carbide prices collapsed, so the profit from PVC production improved. From H2 August, the profit from producing calcium carbide-based PVC began to decrease. According to SCI, the profit from PVC production in Inner Mongolia was about RMB 630/mt in Q3, down RMB 158/mt Q-O-Qand down RMB 12/mt Y-O-Y.

In Q4, 2019, the PVC fundamentals are expected to turn soft, weighing down the PVC market.

First, in terms of supply, the PVC operating rate change follows a certain regularity. In spring, the maintenance is usually intensive, and the maintenance scale is large. In Q2, the overall operating rate of PVC is low. In Autumn, the maintenance is always intensive in October, but the effect is low with small maintenance scale. The overall operating rate is usually high from November to December.

Concerning the turnaround plan in 2019, there will be several PVC producers taking an overhaul in October but no turnaround plan in November and December.

Projected Turnaround Plans

In terms of demand, the rigid demand for PVC will remain stable in October, while that will soften in November and December, basically in Northeast China, Northwest China and some areas of North China. In terms of export market, the export volume is supposed to be low in Q4, 2019.

From a macro perspective, China’s anti-dumping policy against the U.S., Japan, South Korea and Taiwan province will expire at the end of September. It is still unclear how the specific policies will be adjusted after the expiration. But if some countries and regions cancel or reduce anti-dumping duties, it may cause certain competitive pressure on the domestic market.

In general, the supply will increase, and demand will decrease, and the inventory reduction will continue to be gradually stopped, so the supply-demand fundamentals will weaken. However, the demand represented by the Northeast China and Northwest China in Q4 will weaken, exerting a small impact on the overall demand.

The macroeconomic downside pressure will still prevail, and the Sino-U.S. trade frictions will continue. At the same time, the national countercyclical policy will be gradually released. The air pollution treatment policy in winter will also be adjusted according to the actual situation, which will have a temporary impact on the PVC market.

In conclusion, the PVC market prices will move downwards in Q4, 2019. In October, the pressure of supply-demand fundamentals on the market will be small, so the bulls and bears are in a constant struggle. From November to December, the PVC market will keep largely weak.

.......
More detailed information, please click "Read more".