Geopolitical Costs Strongly Rise, PVC Spot Prices Surge in China

March 23rd, according to news:

March 23rd, the Chinese PVC market experienced a strong one-sided trend, with the futures main contract surging significantly. Spot prices also increased but not as much as the futures, presenting an overall pattern of "futures leading the increase, spot prices following, cost-driven, and weak demand." The core driving force behind this round of price increases is the sharp rise in raw material costs due to the ongoing geopolitical conflicts in the Middle East, coupled with the expectation of reduced supply from spring maintenance in China. However, weak downstream demand, resistance to high prices, and high social inventory levels have become the key factors restraining further price increases. The market's tug-of-war between bulls and bears focuses on the mismatch between costs and fundamentals. According to the commodity analysis system, the market price of PVC SG-5 in the East China region was reported at 6,063 CNY/ton, with a single-day price increase of 6.9%.

Core Driver: Violent Cost Increases and Strengthened Expectations of Supply Contraction in China

1. Geographical Factors Drive Raw Material Costs, Ethylene Price Hike Becomes the Core Driver

The ongoing shipping tensions in the Strait of Hormuz, along with high international crude oil prices, have directly driven a sharp increase in the ethylene chain prices, becoming the core driver for the rise in PVC. Since late February, the CFR Northeast Asia ethylene price has surged by over 90%, and the listed ethylene price in East China has also been significantly increased, with the price increase exceeding 65%. The production cost of ethylene process PVC has sharply risen, and some ethylene process facilities have been forced to reduce or even halt production due to raw material shortages and cost inversion. The expectation of tightening raw material supply has thoroughly ignited the market's bullish sentiment. At the same time, the calcium carbide price has also risen, with smooth shipments from calcium carbide plants and low inventory levels. The factory price has been continuously adjusted upward, further solidifying the cost support for calcium carbide method PVC. The cost centers of both processes have moved up in tandem, driving the overall valuation of PVC higher. According to data, the price of calcium carbide has increased by nearly 10% since entering March.

2. Spring maintenance gradually implemented, marginally easing supply-side pressure

The supply side is showing a structural contraction trend. Currently, the overall operating rate in the PVC industry stands at around 80%, representing a slight month-on-month increase, primarily driven by a modest rebound in the operation of calcium carbide-based units, which partially offset the decline. By contrast, the operating rate for ethylene-based units has dropped significantly to 70%. With spring maintenance entering its peak period, plant maintenance-related losses continue to rise, and market expectations for further supply contraction remain strong. Although overall supply remains at a moderately high level, the increasing number of production cuts and maintenance activities have effectively alleviated the previous pressure from oversupply, providing fundamental support for price increases.

II. Supply-Demand Contradiction: Insufficient Demand Follow-up Continues to Curb High Inventory Levels

Demand is weak and cannot keep up with the sharp rise in costs, leading to a significant mismatch between supply and demand. Although downstream pipe and profile manufacturers are gradually resuming operations, they are resistant to high-priced PVC, resulting in poor new order performance. Enterprises mainly focus on replenishing inventory based on their immediate needs and are hesitant to stockpile large quantities, causing a disruption in the price transmission chain. Although the export market has shown some acceptance of higher prices, providing some support for demand, it is not enough to fully offset the weakness in Chinese demand. Overall, the demand side can only provide a bottom-line support and is unable to drive a sustained upward trend in prices.

Inventory remains a potential pressure on the market. Although social inventory continues to decrease slowly, its absolute value is still at a historically high level, and the high inventory situation has not fundamentally changed. The subsequent rate of destocking will be a key indicator affecting the sustainability of the market trend. If downstream demand remains weak and destocking slows down, it will directly limit the upward space for the spot price of PVC in China.

III. Outlook for the Future Market: Short-Term Strong Performance—Beware of the Risk of a Downturn in Sentiment

In the short term, the core trading logic of the PVC market continues to revolve around rising costs and supply contraction triggered by geopolitical developments in the Middle East. The strong support from the cost side remains intact, and expectations of supply contraction persist, making it easier for prices to rise than to fall. As a result, spot PVC prices are likely to remain in a relatively strong, volatile range in the near term. In the medium term, if geopolitical premiums gradually fade, raw material costs decline, and combined with high inventory levels and weak demand—factors that weigh heavily on the market—PVC price upward momentum will gradually weaken. Prices will likely revert to a volatile pattern driven by supply-and-demand fundamentals. It is crucial to closely monitor marginal changes on both the cost and demand sides.