A New Period for PVC Price in the Third Quarter of 2019

Since 2019, the seasonal trend of PVC futures spot is particularly obvious. After entering June, seasonal trends are different, mainly affected by the G20 Summit, and market sentiment is strong. Demand is expected to remain in the peak season of "Gold, Silver and Ten". Under the influence of supply and demand, PVC is expected to reach a new high in the third quarter.

Since 2019, the seasonal trend of PVC futures spot is particularly obvious. Prices rebounded slightly before the Spring Festival due to pre-festival stocks. After the festival, the stock accumulation exceeded expectations, and the price of PVC fell sharply. At the end of March, with the start of spring maintenance and the impact of various safety incidents, prices rose sharply, once exceeding the 7100 high. After June, the seasonal trend is different, mainly affected by the G20 Summit. The market sentiment is strong, and the horizontal oscillation is dominant in early June. After the stabilization of peripheral news, the price of PVC has stepped out of the seasonal upward trend again. From the basic point of view, PVC is expected to reach a year high in the third quarter.

Carbide Continuous Rising Cost Support Strength Enhanced

Looking back on the price trend of calcium carbide during the year, the starting rate of calcium carbide decreased and the price steadily rebounded in February and March under the influence of coal safety accidents and environmental protection inspection. Safety inspection intensified in April. In mid-April, the affected production capacity of calcium carbide reached about 5% of the country's total production capacity. As a result, the price of calcium carbide rose rapidly, setting a new high in the year. In May, PVC entered the centralized maintenance period, the demand for calcium carbide weakened, while the impact of early safety inspection weakened, and the start of calcium carbide increased.

Under the imbalance between supply and demand, the price of calcium carbide dropped sharply. During this period, some calcium carbide furnaces were forced to stop because of loss of profits. Later, with the recovery of PVC start-up rate at the end of June, calcium carbide again showed a situation of short supply and demand, and prices rebounded substantially.

Looking ahead to the price trend of calcium carbide in the later period, it is difficult to recover to a higher level in short-term construction of calcium carbide, and there is still room for a small increase in price. However, unlike the logic of April's rise, the current environmental protection efforts are relatively small, so it is difficult to forecast the price to reach the previous high. In the short run, the price rise of calcium carbide plays a supporting role for PVC from the cost side.

Fewer production capacity put in during the year and limited supply pressure

The planned production capacity of PVC in 2019 totals 1.46 million tons, and the domestic capacity expansion is less than that of PP and PE. As of July, the expanded enterprises include Beiyuan, Ruiheng, Taizhou Lianhe and Jinyuyuan, Ningxia, with a total capacity of 700,000 tons. As a result of more chemical safety accidents in China in the second quarter, the number of long-term maintenance devices increased. At the same time, the loss of spring maintenance of PVC in the year exceeded the same period in the past few years, hedging the supply increment brought about by the new production capacity. From the output forecast data, the growth rate of supply in January to June is about 1.35%, and the growth rate of domestic supply in the whole year is expected to be 3.3%.

In the context of low supply growth, although the growth rate of demand is also slowed down by the impact of domestic macroeconomic, overall, the probability of tight supply and demand balance in the year is higher.

Real estate start-up data perform well

As more than 70% of downstream products of PVC are highly related to real estate, the start-up of real estate will determine the performance of demand for PVC. From the point of view of the construction cycle, 1-3 months after the start of the new project is the stage of foundation construction. The main demand is screw steel and cement. After foundation construction, bents will be erected, hollow slabs will be placed, steel pipes will be erected, concrete will be poured, and pipes will be embedded in advance. At this time, PVC pipes will be ordered. Pipe manufacturers will purchase PVC raw materials after receiving orders. Therefore, from the perspective of time cycle, the new construction will correspond to the demand for PVC after 3 to 6 months.

According to the real estate data released by the Bureau of Statistics on July 15, the new construction area of houses in January-June was 105.59 million square meters, up by 10.1%, and the growth rate dropped by 0.4 percentage points. According to the new housing construction data, the new housing construction area increased steadily from January to June 2019, which will correspond to the late "gold, silver and ten" peak season demand. As a result, expectations remain for the peak season.

In summary, in the supply side, in 2019, new production capacity was put on the low side, long-term parking devices increased, maintenance losses in spring were higher than those in previous years, and overall supply pressure was relatively limited. On the demand side, although the growth rate of domestic macro-economy has slowed down due to trade frictions, the real estate industry has maintained a growth trend in the first half of the year, and the demand expectation of the "gold, nine silver and ten" peak season still exists. Under the influence of supply and demand, PVC is expected to reach a new high in the third quarter.

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