On one hand, the domestic capacity expansion cycle is nearing its end, with limited new capacity additions expected in 2026. On the other hand, the real estate sector is poised to gradually bottom out and improve, suggesting domestic PVC demand need not be overly pessimistic.

Since the start of 2026, PVC prices have experienced significant volatility while trending upward. News of a potential cancellation of PVC export VAT rebates in Q2 briefly triggered a sharp short-term decline in futures prices. However, the market quickly digested this expectation, anticipating a “rush to export” scenario in Q1. Subsequently, driven by multiple positive factors including geopolitical tensions and cold weather in the U.S., the chemical sector strengthened overall, pushing PVC prices back above the 5,000 yuan/ton threshold.

Recent PVC production facilities have maintained stable output, keeping existing supply at elevated levels. The industry's comprehensive operating rate stood at 79.26%, up 0.33 percentage points month-on-month but down 2.88 percentage points year-on-year. January PVC output reached 2.15 million tons, representing approximately 2.5% year-on-year growth. Domestic PVC capacity expanded rapidly in 2025, with 2.2 million tons of new capacity added throughout the year, marking a year-on-year growth rate of nearly 8%. Entering 2026, the capacity expansion cycle is gradually winding down. Currently, only Zhejiang Jiahua's 300,000-ton facility has commissioning plans domestically, while overseas projects like those in the UAE have been postponed. Market focus will shift to post-holiday spring maintenance schedules. Overall, with slowing new capacity additions and the phased exit of outdated domestic and international facilities, PVC supply pressure is expected to ease gradually.

Currently, domestic PVC is in its off-season for domestic demand, with terminal projects suspending operations and downstream product manufacturers widely closing for holidays. The pace of post-holiday resumption will be a key focus moving forward. Downstream demand for pipes and profiles remains highly dependent on the real estate sector. China's property market will continue its adjustment phase in 2025: annual real estate development investment is projected to decline by 17.2% year-on-year, with construction area down 10%, new construction starts down 20.4%, completed area down 18.1%, and commercial housing sales area down 8.7%. As market inventories continue to be absorbed, policy coordination takes effect, and market expectations gradually improve, the real estate market is expected to bottom out during the 15th Five-Year Plan period, at which point domestic PVC demand will also rebound. Regarding external demand, cumulative PVC exports in 2025 reached 3.82 million tons, a year-on-year increase of 46.1%, which alleviated domestic supply pressure to some extent.

Data indicates that as of early February, social inventory stood at 1.227 million tons, a 49.1% year-on-year increase, while upstream enterprise inventory was 288,000 tons, down 33.5% year-on-year. Inventory continues to shift toward the midstream.

Upstream enterprises accelerated pre-sales before the Spring Festival, with some factories already fully booked from February to mid-March, effectively easing factory inventory pressure. During the holiday period, upstream and downstream enterprises operated on an alternating start-stop basis, leading to further overall inventory accumulation. Post-holiday spring maintenance schedules and the pace of inventory drawdown following downstream demand recovery warrant close attention.

Since the beginning of the year, calcium carbide prices have rebounded significantly, accumulating an increase of approximately RMB 225/ton. Meanwhile, ethylene prices have continued to decline, resulting in substantial losses for individual PVC calcium carbide-based production units. Affected by persistently low liquid caustic soda prices, the profitability of chlor-alkali integrated enterprises remains bleak. In Shandong, chlor-alkali production margins have fallen to the break-even point, which will provide stronger cost support for PVC.

Overall, while current PVC inventory levels remain elevated, the domestic capacity expansion cycle is nearing its end in 2026 with limited new additions. Post-holiday spring maintenance intensity warrants close monitoring. Macro-wise, this year marks the start of the 15th Five-Year Plan period, featuring positive policies and ample liquidity. The real estate sector is expected to gradually bottom out and improve, so domestic PVC demand need not be overly pessimistic. On the export front, although export tax rebates will be phased out later, overseas demand from countries like India remains resilient. Combined with capacity exits in some overseas markets, demand for Chinese PVC abroad is unlikely to weaken significantly. However, overall PVC inventories remain elevated, necessitating attention to the pace of destocking following improvements in the supply-demand structure. Operationally, a medium-to-long-term strategy of buying on dips is recommended.

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