Weak Market Drive May Hinder Short-term PVC Price Surge

As the Chinese New Year approaches,the expectation for a weakening in the fundamentals of the PVC market looms large.Factors such as short-term improvements in commodity sentiment seem insufficient to create sustainable price momentum.This leads to the possibility that the recent rise in PVC prices may not be sustainable.The operating rates for PVC production remain relatively high; however,there are expectations of inventory accumulation during the holiday period.

Looking at the operational aspect,the first quarter typically represents a peak season for PVC production.Currently,only a few companies,such as Suzhou Huayu and Guangxi Huayi,have announced maintenance plans.Given the profitability in the chlor-alkali and PVC integration,it is anticipated that the overall operating load for PVC will remain high in the short term.

From an inventory perspective,recent low pricing has led to a temporary increase in transaction levels,but the absolute inventory numbers are still on the high side.According to statistics from Zhuochuang,as of February 9,the inventory in East China and South China warehouses exceeded 388,100 tons.When factoring in additional stocks,the total inventory rises to 744,900 tons.With downstream demand likely to weaken during the New Year holiday,the industry is expected to see a seasonal accumulation of inventory.If downstream operations pick up late after the holiday,combined with some companies preemptively stocking up,the actual accumulation of inventory might be even greater.Overall,high inventories continue to be a significant weakness for PVC,dampening its price performance.Additionally,March typically brings a concentration of warehouse registration expirations,which may further pressure the market with some supply influx.

The demand for PVC from downstream industries is entering a seasonal lull.The construction sector largely dictates current PVC demand,while new construction activity sets expectations for future needs.The sustained decline in new construction over the past two years indicates that the demand for PVC from the real estate chain may continue to weaken.Current real estate policies primarily focus on controlling increases,reducing stock,and improving quality.If these sales trends do not translate into new construction activities,improving the demand outlook for PVC becomes challenging.

With regard to domestic demand,rigid products such as pipes and profiles have still been somewhat restrained by the property market.Some flexible products like films and flooring have seen a slight rebound; however,their proportion of total demand remains limited.In the short term,as the holiday approaches,operations for pipe manufacturers are likely to dip,leading to the lowest levels of production for the year during the New Year holiday.Medium-term prospects signal that production in the pipe manufacturing sector is aligned with sales performance.In contrast,profile manufacturers face challenges from both the sluggish real estate market and the competition from plastic-steel replacements; thus,monitoring the performance of the real estate sector remains critical.

External demand paints a more promising picture,as exports from January to November 2024 totaled 2.3849 million tons,reflecting a year-on-year increase of 13.5%.Demand might have remained stable in December due to delayed BIS certifications and domestic price lows.Nonetheless,with the New Year holiday nearing,foreign order volumes are expected to gradually decrease.Short-term overseas raw material price increases seem probable,but the domestic pricing advantage is expected to remain,bolstering predictions of continued export growth for the first quarter of 2025.

To sum it up,while macroeconomic policies have intensified since the fourth quarter of 2024,it remains uncertain whether they can restore confidence in the PVC market.There is still a considerable time lag before real estate and other policies affect underlying industries,posing significant challenges for any substantive improvement in the PVC market in the short term.Currently,the market is in a policy lull,and any marginal recovery in sentiment warrants observation.Expectations around March's policy outcomes and the two sessions may not materialize until after the holidays.Although low prices have precipitated some speculative demand from downstream users,weakened demand expectations as the New Year holiday approaches hinder the overall momentum.

The marginal profits from caustic soda serve as cushion to PVC’s ongoing losses,though the cost side does not exhibit significant impacts.Despite continuing losses from PVC over the past two years,chlor-alkali enterprises are experiencing modest overall profitability,supported by the profits from caustic soda.So far in 2024,there have been no visible indicators of proactive reductions in PVC production from upstream suppliers; caustic soda manufacturers also maintain high operational output.Limited maintenance within the chlor-alkali sector is expected in the first quarter,while the demand for caustic soda in aluminum oxide production conditions its price support.Therefore,the acute profitability from caustic soda is likely to prevent significant reductions in PVC production in the immediate future.

For PVC,2025 may still present a battle between weak realities and policy expectations,with costs primarily providing foundational support rather than increasing valuation.Presently,the PVC valuation is low; therefore,under macro-driven conditions,some rebound and repair could occur.However,the weak fundamentals may hinder the emergence of sustained upward trends.

Examining product interdependencies reveals that the caustic soda profits are a key factor preventing proactive PVC production cuts.If caustic soda shows strong performance,the cost support for PVC may weaken,leading to sustained supply without reductions; however,as demand weakens during the holiday,prices may not sustain their climb and could even see further corrections.Conversely,if caustic soda prices decline,cost support may strengthen,allowing for marginal improvements in PVC as supply loads are reduced.

From a supply perspective,the first quarter is a peak production period,meaning PVC output will likely remain high amidst expectations of inventory accumulation during the holiday.This yields a relatively complacent supply side.Meanwhile,in terms of demand,PVC continues to be influenced by the real estate sector.The transmission of previous pro-real estate policies to the micro-industry still requires time to materialize.There are expectations for weakened domestic demand both before and after the New Year holiday.While export figures are relatively strong,their support is limited.On the profit side,the sustained support from alumina production on caustic soda profitability signals ongoing coverage of PVC losses; in the short term,significant reductions in PVC output seem unlikely.

Therefore,from a strategic standpoint,the persistently weak fundamentals surrounding PVC will invariably suppress price performances.In a low valuation context,improvements in macro sentiment may lead to phase-based rebounds in the PVC market.However,if sentiment weakens again,downward movements can be anticipated.In the short term,expectations for weakened fundamentals dominate,rendering any short-lived improvements in commodity sentiment incapable of providing sustained traction for PVC price increases.Looking ahead to the mid-term,while the second quarter may herald a season of concentrated maintenance for PVC,the combination of high inventories and a lack of evident demand reinforcement makes minimal positive factors unlikely to drive prices sustainably.For the May contract,handling ongoing pressure remains a probable scenario.