It is expected that the PVC market in the second quarter will continue to fluctuate at a high level

As the price of PVC experienced a high of 9,000 CNY/ton at the end of last year, the price center of the PVC industry has increased significantly compared with previous years, and the PVC market has fluctuated sharply in recent months. The current price has returned to a high level, but from the current domestic supply and demand, cost side, export and macro factors, there are still many favorable factors for PVC. It is expected that the PVC market will continue to fluctuate at a high level in the second quarter and the center of gravity will move upward.

Recently, the domestic PVC market price fluctuated sharply. After the price rose to a high of 9,000 CNY/ton in mid-December last year, the price fell sharply by more than 1,900 CNY/ton in the following month, a decrease of 21.14%, and the price dropped to 7100 in mid-January. After the RMB/ton price, the price rebounded, and the price rose rapidly after the year. At the end of February, the average price of East China SG-5 rose to 8751 RMB/ton, an increase of 23.25%, which was only one step away from the highest price last year.

The recent sharp fluctuations in prices can be summarized as macro expectations, fundamental changes, and unexpected factors.

The sharp drop in prices last year was mainly affected by the following four aspects:

1. High prices inhibit downstream start-ups. Small companies started to reduce and suspend production in early December, and large companies also reduced production in mid-December;

2. The number of maintenance companies has decreased significantly, and the start-up load of PVC companies has increased to over 82%;

3. The social inventory in East China and South China began to increase in early December, and the increasing trend was confirmed in mid-December;

4. The off-season is approaching, and the average price of PVC in previous years is below 7,000 CNY/ton, and the market is not adapting to high prices.

The sharp rise in prices after the year is mainly reflected in the following four aspects:

1. Before the Spring Festival, traders and downstream stocks increased, and the sales pressure of upstream companies eased;

2. The macro-level expectations are strong. The new round of stimulus plans in the United States and international investment banks are optimistic about commodity expectations, which boosts market sentiment;

3. The export arbitrage window continues to open, and exports divert domestic sources of goods;

4. After the holiday, the United States encountered a cold wave, and the installation of more than 4 million tons was unexpectedly shut down, and the international supply of goods became more tight.

Entering March, the PVC market fluctuated violently, with a daily adjustment of 200-300 CNY/ton, which made it difficult for many market participants to adapt to the new rhythm. On the one hand, there are a large number of profit-taking orders after the big rise. In the case of turmoil in the market, there is a phenomenon of profit-taking. On the other hand, the price once again stood at a historical high, the downstream resistance was heavier, and the downward transmission of the price encountered resistance. For the next market trend, participants have a greater wait-and-see sentiment.

Based on the current macro perspective, domestic supply and demand, cost side, export and other factors, Zhuo Chuang still has many favorable factors for PVC. It is expected that the PVC market will continue to fluctuate at a high level in the second quarter and the center of gravity will move upward.

Domestic liquidity has tightened, European and American stimulus measures have not ended

Domestic liquidity has shown a slow turn, from "wide currency" to "stable currency". Since May last year, with the recovery of the economy to potential growth, domestic monetary policy has returned from a crisis state to a normal mode, with structural easing and structural easing. Tighten up and coexist. In January 2021, the central bank's open market investment volume has significantly reduced, and monetary policy has once again tightened marginally. The marginal tightening of domestic monetary policy has caused the stock market to undergo a wave of significant adjustments, but the commodity market is less affected by this. The commodity market pays more attention to the impact of monetary policies in Europe and the United States. The stimulus policy of the US at the end of last year was expected to be 1.9 trillion. Promoting the rise of the domestic commodity market, as the recent 1.9 trillion stimulus plan approaches the landing, the overall monetary policy of the United States is expected to be loose in the future, which still supports the domestic commodity market.

High supply drops, downstream passively accepts high prices

The first quarter is generally the peak season for PVC production, and industry starts are often at an annual high. Judging from the performance of the first quarter of this year, the weekly start of the PVC industry has been maintained at more than 84%. At the end of February, the weekly start load of PVC reached 87.86%, basically It is the limit of the industry's operating load. After March, due to the influence of raw material factors, some devices have begun to reduce production. The second quarter is the season of centralized inspection and repair of PVC, and it is expected that the supply will continue to decline from a high level.

After the rapid rise of PVC prices after the holiday, the downstream was very resistant, and the downward transmission of prices encountered resistance. However, with the gradual price increase of downstream products, the start of downstream products has also recovered significantly, and the start of flooring, leather, cables, and membranes has gradually recovered to 70% to 80%, the pipe load has recovered to more than 50%, and end product companies gradually passively accept high prices.

The seasonal high of PVC inventory is lower than expected

Inventory is the most direct manifestation of the outcome of the game between supply and demand. Since the beginning of this year, there has been a seasonal increase in inventory, and some warehouses in East China and South China have also experienced blowouts. However, according to the inventory performance of Zhuochuang's statistics, there has been an inventory turning point in East China since the week of March 5, and East China inventory will continue to decline this week. The decline in East China’s inventory is two weeks earlier than in previous years, and the total inventory in East China and South China is also lower than the same period in 2019 and 2020. The better-than-expected improvement in inventory performance has greatly boosted market confidence.

U.S. installations have been relatively slow to recover, and exports continue to support

After the Spring Festival, due to the extremely cold weather in the United States, a large number of power systems in Texas were paralyzed, and many chemical plants were accidentally shut down, involving more than 4 million tons of PVC accidental shutdown devices. One month later, 726,000 tons of equipment have been resumed, but the load is not high. 1.74 million tons of equipment is ready to restart, and the other 1.738 million tons of equipment is not clear when it will restart. Judging from the current restart speed of US installations, it is expected that the shortage of supply in the international market may continue until after May. Export support will still exist for some time to come. According to reports, next week, Taiwan's Formosa Plastics will report cargo prices in April, and the market expects an increase of around US$300/ton from February.

The cost of PVC rises faster

In Inner Mongolia, due to the dual control of energy consumption, the production of calcium carbide was forced to reduce. According to Zhuo Chuang's statistics, the daily loss of calcium carbide due to policy factors was about 4,200 tons, accounting for about 5.19% of the country's total output. The calcium carbide itself is in a tightly balanced situation. With the reduction of more than 5% of the output, the calcium carbide is obviously in short supply and the price has soared. By mid-March, the price of calcium carbide had reached the highest level in history, and the arrival price of calcium carbide in Shandong reached a high of 5,000 CNY/ton. , The equivalent PVC cost will reach about 8600 CNY/ton, and the profits of PVC companies that purchase calcium carbide will be completely eaten by calcium carbide.

In addition to calcium carbide raw materials, the cost pressure of imported VCM enterprises will be more obvious. The latest VCM importer negotiated prices have not yet been released, but the international VCM price and the price of PVC are highly correlated. The cold wave in the United States also caused a large number of VCM installations to stop unexpectedly. International supply is in short supply. The market expects that the VCM price in April to be negotiated next week may reach US$1,300/ton CFR China. If the cost of PVC enterprises importing VCM is calculated at this price, it will reach more than RMB 10,000/ton.

According to statistics, there are 4 PVC companies (producing general resins) that have purchased VCM, with a total production capacity of 1.35 million tons, accounting for 5.24% of the national production capacity. At present, Tosoh has stopped for maintenance, and the load of Liancheng has dropped to about 40%. Other start-ups are temporarily normal. However, as the early low-cost raw materials are used up, the cost pressure of this part of the company will be obvious in the future.

So overall, although PVC prices have reached historical highs, there are still many positive factors. Therefore, it is expected that the PVC market in the second quarter will continue to fluctuate at a high level and the center of gravity will move upward.