After the Spring Festival, with the rise in temperature and the resumption of infrastructure projects, the operating rate of downstream industries is expected to increase. If the demand recovery is stronger than expected, the inventory destocking process will start.
Benefiting from the short-term recovery in exports, the continued positive expectations for the domestic economy, and the optimistic outlook for the bulk commodity market, the price of PVC futures fluctuated upward last Friday, once climbing to 5,125 yuan/ton during the session, hitting a new high since mid-December last year. By the close of the day session, it rose 3.41% to 5,063 yuan/ton. In the stage of a game between the weak reality of fundamentals and strong policy expectations, PVC prices will maintain a relatively strong oscillating trend.
Short-term supply pressure remains, and the logic of long-term contraction is clear
From the supply perspective, the dual pattern of the PVC market, which is "loose in the short term and tight in the long term", is gradually becoming clear. Plants such as Jiangsu Xinpu and Ningbo Hanwha have resumed production, further supplementing market supply, leading to a loose short-term supply. It is understood that in January, the number of PVC plants under maintenance decreased and the capacity utilization rate increased, driving the monthly output to a relatively high level compared with the same period in history. According to data released by Longzhong Information, the overall operating rate of the PVC industry remained high in January, with the capacity utilization rate estimated at 78.98%, an increase of 0.56 percentage points month-on-month. Among them, the capacity utilization rate of calcium carbide-based PVC is estimated at 79.76%, an increase of 0.6 percentage points month-on-month; the capacity utilization rate of ethylene-based PVC is estimated at 77.14%, an increase of 0.57 percentage points month-on-month. Affected by this, domestic PVC output in January is estimated at 2.1471 million tons, an increase of 50,800 tons month-on-month, with a growth rate of 2.42%.
However, in the medium to long term, there is a consensus that production volume will shrink under the "anti-involution" orientation. This year, the new PVC production capacity is only 300,000 tons (Jiaxing Jiahua plant), and the capacity expansion cycle is coming to an end. The 2.85 million tons of over-running production capacity and 2 million tons of long-term idle production capacity that the Ministry of Industry and Information Technology is investigating are expected to be withdrawn in a concentrated manner in the first quarter, and the scale of high-cost production capacity to be phased out throughout the year may reach 3 million tons.
Domestic demand weakens seasonally, while exports recover periodically
Demand is the weak link in the current fundamentals of PVC. There is a sharp contrast between the seasonal weakening of domestic demand and the phased recovery of exports. The domestic market has entered the traditional off-season for demand. Low temperatures in northern China have slowed down construction progress at construction sites, and coupled with the approaching Spring Festival, downstream product enterprises have successively stopped production for holidays, with their operating rates generally at a low level. As of the end of January, the comprehensive operating rate of PVC downstream was only 45%. Among them, the operating rate in the pipe sector was 37%, and that in the profile sector was 31.5%, both at a relatively low level compared with the same period in history. In addition, last year, the performance of new real estate starts and construction areas remained weak, and it will take time for the demand in the real estate chain to improve. Terminal enterprises are cautious in stockpiling, mainly replenishing stocks based on rigid demand, and have an obvious resistance to high-priced goods sources.
Exports have become a bright spot on the demand side. The Ministry of Finance issued an announcement on January 9th, stating that it will cancel the export tax rebate for PVC (with the current tax rebate rate being 13%) starting from April 1st, 2026. This directly triggered a "rush export" situation. In January, the number of PVC export orders rose to a high level in recent years, which alleviated the domestic inventory pressure to a certain extent and further promoted a phased rebound in futures prices.
Inventory levels are manageable, and enterprises are ramping up pre-sales.
High inventory levels are a problem that the current PVC market needs to address. According to data released by Longzhong Information, as of the end of January, domestic PVC social inventory stood at 1.2064 million tons, up 2.45% week-on-week and 60.54% year-on-year. Among them, inventory in the East China region was 1.1488 million tons, a week-on-week increase of 2.66% and a year-on-year increase of 59.90%; inventory in the South China region was 57,500 tons, a week-on-week decrease of 1.54% and a year-on-year increase of 74.33%. The inventory structure is characterized by "social inventory as the mainstay and in-plant inventory as a supplement". Recently, the inventory of PVC manufacturers has increased by 11.63% compared with the same period last year. The pressure of holiday-related inventory accumulation is manageable for enterprises, and manufacturers increased pre-sales before the Spring Festival, with some pre-selling until after the festival. The overall sales pressure is not significant, and the impact of on-hand inventory on prices is weak.
To sum up, in the PVC market, before the Spring Festival, the short-term weak realities such as high supply, weak demand and high inventory are competing with the strong expectations in the medium and long term, such as capacity contraction and the "rush to export" phenomenon brought about by export tax rebates. After the Spring Festival, with the rise in temperature and the resumption of infrastructure projects, the operating rate of downstream industries is expected to increase. If the demand recovery is stronger than expected, the inventory destocking process will start. On the whole, PVC prices will fluctuate with a bullish bias.
