Over the past week, PVC prices continued their downward trend. Since hitting an annual high in July, the market has yet to see a strong rebound, with August and December experiencing the most significant declines. The current supply-demand imbalance and persistently high inventory levels are widely acknowledged. Since early last week, the breakout declines in coking coal and other ferrous metals have further intensified short-term bearish sentiment.

Following sluggish growth in 2024, the PVC industry faces another production capacity peak in 2025. Year-to-date, new capacity additions have reached 2.2 million tons, representing nearly 8% growth, pushing the industry's total effective capacity beyond 29 million tons. By year-end, Zhejiang Jiahua's 300,000-ton ethylene-based capacity is expected to commence operations. Looking ahead to 2026, only Jiahua's 300,000-ton capacity is projected to achieve mass production domestically, with no other new projects planned. Internationally, only the UAE's 350,000-ton capacity is scheduled for commissioning by late 2026. Overall, global PVC capacity expansion is nearing its conclusion.

In terms of actual output, China's cumulative PVC production reached 22.32 million tons from January to November 2025, marking a 4.35% year-on-year increase. Within this, calcium carbide-based production grew by 1.95% year-on-year, while ethylene-based production surged significantly by 11.48%. As new capacity additions this year are primarily concentrated in ethylene-based plants, the incremental supply pressure also stems mainly from these facilities. Despite widening losses for PVC as a single product, the PVC industry has maintained an average operating rate at a moderately high level since 2025—and overall higher than the same period last year—as the chlor-alkali sector remains profitable overall.

PVC demand is primarily concentrated in the real estate and infrastructure sectors, with particularly strong ties to real estate. From January to October this year, national real estate development investment decreased by 14.7% year-on-year. Construction area declined by 9.4%, new construction starts fell by 19.8%, and completed construction area dropped by 16.9%. Sales area of commercial properties decreased by 6.8% year-on-year. However, as the inventory reduction of commercial housing continues, the nationwide unsold commercial housing area has declined month-on-month for eight consecutive months, now returning to the level seen at the beginning of last year. In infrastructure, investment in infrastructure from January to October saw a slight decrease of 0.1% year-on-year. Considering that next year marks the beginning of the 15th Five-Year Plan, a number of major infrastructure projects are expected to commence, which may accelerate the growth rate of infrastructure investment and provide some support for PVC demand.

Regarding exports, cumulative PVC powder exports from January to October 2025 reached 3.23 million tons, a 49% year-on-year increase. Major destinations included India (41.5%), Vietnam (6.2%), and Uzbekistan (4.1%). India's cancellation of the BIS certification policy in November this year, coupled with the suspension of anti-dumping duties, will provide long-term positive support for domestic PVC exports. For finished product exports, China's cumulative exports of PVC flooring materials reached 3.4556 million tons from January to October, down 11.5% year-on-year. Major destinations included Europe and the Americas, with the United States accounting for 17.3%, Canada for 9.8%, and Germany for 7.2%. Amid recurring trade frictions and weak overseas demand, overall exports of PVC products contracted, with the proportion of exports to the United States continuing to decline, while the share of exports to other markets increased.

Inventory trends show that upstream factory inventories have generally trended downward with fluctuations this year, while social inventories first decreased and then increased. By mid-December, total industry inventory reached 1.4421 million tons. Although this represents a marginal 0.38% increase month-on-month, it remains 18.65% higher year-on-year. Overall inventory pressure remains significant, with the market closely monitoring next year's potential inventory drawdown inflection point. Meanwhile, exchange-registered warehouse receipts have declined from earlier peaks but remain at elevated absolute levels.

Overall, the PVC industry faces substantial pressure from new capacity additions this year. However, starting next year, new capacity additions will be virtually nonexistent, signaling the end of the capacity expansion cycle. On the domestic demand front, the current seasonal slowdown, coupled with the drag from the weak real estate cycle, limits the momentum for demand recovery. Close attention should be paid to next year's real estate policies and the actual progress of inventory reduction. For exports, the environment is improving as India has lifted BIS certification requirements and suspended anti-dumping duties, suggesting exports will continue to provide support next year. Cost drivers remain weak, but valuations are currently low. Key attention should be paid to how changes in chlor-alkali plant operating rates impact costs and supply. Technically, although a rebound occurred during last Friday's night session amid reduced positions, the medium-to-long-term bearish trend remains intact. Investors should exercise caution when attempting to catch the bottom. It is advisable to patiently await shifts in next year's supply-demand dynamics and combine these with clear technical signals of strengthening before considering long positions.

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