Lacking Substantive Bullish Catalysts, PVC Expected to Fluctuate at Low Levels in the Short Term

According to Sina Finance, the PVC industry is currently operating at a generally low utilization rate. With both domestic and international demand weakening simultaneously, the market—despite exhibiting a minor supply deficit—faces significant downward pressure from elevated inventory levels. Consequently, PVC prices are expected to continue their pattern of low-level fluctuation in the short term.

Industry Operating Rates Remain Low

Since the escalation of geopolitical conflicts in the Middle East in March, the overall operating load of China’s domestic PVC industry has been on a continuous downward trend. On one hand, upstream calcium carbide producers have undertaken concentrated furnace shutdowns for maintenance, tightening raw material supplies and compelling calcium carbide-based PVC manufacturers to voluntarily scale back production. On the other hand, geopolitical disruptions have driven up international energy prices and significantly increased the cost of ethylene feedstock. This has placed immense cost pressure on ethylene-based PVC manufacturers, many of whom have opted to halt or curtail production and reduce their finished goods inventories.

As of May 14, the overall operating load of the domestic PVC industry stood at 69.4%—a year-on-year decline of 8.3 percentage points, and a drop of 12.68 percentage points compared to late February, prior to the onset of the geopolitical conflict. Breaking this down by production method: the operating load for calcium carbide-based PVC was 78.41%, a modest decline of 3.2 percentage points from late February; meanwhile, the operating load for ethylene-based PVC was a mere 48.2%, representing a substantial decline of 35 percentage points over the same period. Driven by these persistently low operating rates, weekly domestic PVC output has fallen to 422,500 tons.

Currently, industry production margins remain under sustained pressure. Calcium carbide-based PVC production is incurring a loss of approximately 140 yuan per ton, while losses for ethylene-based PVC have surged past the 1,000-yuan-per-ton mark. In the short term, a significant de-escalation of geopolitical tensions appears unlikely, and the tight supply landscape for international energy is expected to persist. Consequently, there is currently no room for a recovery in profit margins for ethylene-based PVC production, ensuring that the industry’s overall operating load will remain at depressed levels.

The reduction in supply is driving the industry into a gradual inventory destocking cycle; however, sluggish downstream demand is hindering the pace of this destocking process. As of May 14, the combined total of inventories held by domestic PVC manufacturers and broader market (social) inventories stood at 1.6606 million tons—a marginal month-on-month decrease of 0.59%, yet still a substantial year-on-year increase of 55.81%. Specifically, social inventories stood at 1.2992 million tons—a staggering year-on-year increase of 102.51%—indicating that the pressure to destock remains severe. On a regional basis, social inventories in East China totaled 1.2545 million tons, up 114.86% year-on-year; conversely, social inventories in South China amounted to 44,700 tons, down 22.49% year-on-year. This highlights a distinct divergence in inventory trends across different regions.

Weak Recovery in End-Market Consumption

Although various localities have successively introduced policies designed to shore up the property market, the real estate sector—the core downstream industry for PVC—remains sluggish. The weakness in the property sector directly dampens overall demand for PVC; concurrently, the pressure from rising raw material costs is proving difficult to effectively pass on to downstream industries.

The market is currently in the traditional off-season for PVC consumption; consequently, end-market participants lack enthusiasm for procurement, and order volumes for pipe and profile manufacturers remain low. As of May 14, the operating rate among a sample of domestic pipe manufacturers stood at 39.24%—a month-on-month increase of 7.06 percentage points, yet a year-on-year decline of 9.82 percentage points. Similarly, the operating rate for profile manufacturers reached 42.17%, up 19.56 percentage points month-on-month. While operating rates in the end-markets have shown a modest uptick, they generally remain at low levels. Currently, domestic weekly “rigid demand” (essential consumption) for PVC stands at approximately 400,000 tons; when combined with an export volume of around 30,000 tons, the market faces only a minor supply deficit—insufficient to provide a substantial boost to prices.

The export market is also showing signs of weakening. Since April 1, China has abolished the export tax rebate policy for PVC. In anticipation of this change, market participants rushed to ship goods ahead of the deadline, effectively front-loading and exhausting overseas demand in advance. Data released by the General Administration of Customs indicates that in March, domestic PVC exports totaled 800,272.44 tons—a year-on-year increase of 372,670.42 tons, or 87.15%. For the first quarter (January through March), cumulative exports reached 1,657,313.98 tons—up 523,959.39 tons year-on-year, representing a growth rate of 46.23%. This earlier surge in concentrated exports effectively fulfilled overseas orders ahead of schedule; following the implementation of the new policy, subsequent export volumes are expected to gradually decline, further diminishing the supportive role of external demand. Overall, geopolitical factors have driven up energy prices, resulting in elevated production costs for ethylene-based PVC and exacerbating production losses. This has prompted a decline in the industry’s overall operating rate to a relatively low range for the year, leading to a steady reduction in market supply. However, the market is currently trapped in a pattern of weak supply and weak demand; domestic end-user demand has failed to recover as expected, while external demand has simultaneously softened following the fading of export-related tailwinds. Consequently—even though a minor supply deficit exists on the futures market—massive existing inventories continue to firmly suppress any potential for price appreciation. In sum, absent any substantial bullish catalysts, the PVC market currently lacks clear upward momentum and is expected to maintain a volatile, weak trend at low levels in the short term.

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