PVC: Rising pressure or going into market consolidation

Abstract: In September, the start-up rate of downstream profile factories of PVC rose, and in October and November, PVC factories entered a stage of pre-winter autumn maintenance period. In addition, the price of crude oil futures continued to rise under the influence of geopolitics. At the end of October, the environmental protection policy fermentation of montmorillonite production and rectification led to the price of PVC futures. From the beginning of August to the middle of August, Ge continued to rise. In recent days, due to the impact of environmental policy on production restriction, speculation has ended, many positions have been profitable, coupled with the relatively weak demand side, the price of PVC futures has come back.

In the medium and long term, weak demand has exerted some pressure on high prices. At present, inventory has dropped to the same period last year, but in absolute price, it is still at the high level in recent years. Later supply and demand improvements will limit the short-term space below PVC. However, the height of the rebound depends on the speed of inventory decomposition. If the inventory can be converted to a year-on-year decline, it will continue to have an impact on the futures price. Otherwise, the upstream space will be limited in the later period. It is suggested to short short short short short short short short short positions in short term.

Narrow oscillation of domestic PVC spot market and small price retracement. Influenced by the equipment overhaul of Inner Mongolia Yili, Lejin Chemistry, Inuit, Ningbo Taisha Plastics and Tangshan Sanyou, the PVC industry started a narrow decline. Inventory of production enterprises is at a low level, and most large manufacturers have pre-sale orders. Although the recent shipment situation is general, there is no sales pressure yet. Traders have basically stabilized their prices and the actual transaction prices have been loosened. With the decline of futures prices, market participants'confidence has been hit and short sentiment is strong. Operations are mainly short band operations. 

 After the rising market from the end of March to the beginning of May 2019, the main PVC companies have come back to the market in recent days, and the current price gap fluctuates greatly. Judging from the output of PVC, the overall output of PVC in 2019 was at a higher level than that in previous years, continuing the high-yield situation since the end of 2018, which formed a certain pressure on the price of PVC futures.

Soda prices have been rising again recently, slightly declining last week, but prices remain high, which makes the profit of chlor-alkali industry better. This factor will make it difficult for the production of PVC to decrease for a while.

Compared with 2018, the overall social inventory level of the PVC industry has remained at a relatively high level this year. After the previous stage of de-inventory, inventory has been at a low level, but still higher than 2018. It is expected that the industry will continue to reduce inventory for some time. From the upstream and downstream start-up rate, the upstream start-up rate of PVC has been up in early April, but it is still higher than the same period in 2018. The start-up rate of downstream PVC industry has been rising since March, which will play a supporting role in futures prices.

In August, downstream construction basically maintained a normal level, large and medium-sized products enterprises started to maintain a high level, some small and medium-sized products enterprises still have room for improvement, pipe and profile enterprises have restored to about 5-70%, downstream market maintained just need to take goods. Although September is the traditional peak demand season, downstream demand has recovered to a positive level, and there is limited room for improvement.

PVC consumer goods are divided into two parts: soft products and hard products. Pipe/pipe fittings and profiles/doors and windows are the two most used areas in hard products. Pipes/fittings and profiles/doors and windows are mainly used in the construction field. The development of domestic real estate industry plays a decisive role in the demand for PVC. Under the policy of "stabilizing land price, stabilizing house price and stabilizing expectation", the real estate market has undergone positive changes, and the main indicators are mostly in a steady and moderate trend. In the second quarter, investment in real estate development was generally stable, increasing by 10.9% year-on-year, a slight decrease of 0.5 percentage points compared with January-February, and the new construction area of real estate increased by 15.1% and 2.4 percentage points. From the demand side, the overall growth rate of real estate slowed down in 2018, and the completion of real estate development in the first four months was at a lower level than in previous years. New housing construction area and commercial housing sales are lower than the same period last year. The weak demand side will put pressure on the upward movement of PVC futures prices.

The weak demand of transaction concept has exerted certain pressure on the high price of PVC. At present, the stock level has dropped to the same period last year, but from the absolute price point of view, it is still at the high level in recent years. Later supply and demand improvements will limit the short-term space below PVC. However, the height of the rebound depends on the speed of inventory decomposition. If the inventory can be converted to a year-on-year decline, it will continue to have an impact on the futures price. Otherwise, the upstream space will be limited in the later period. The impact of environmental protection policy on limestone price will still be an uncertain factor of PVC futures price. It is suggested that short-term investors reduce their positions and look for opportunities to short.