SunSirs: PVC's Downside Potential Remains Limited

The PVC market will continue to face pressure from high supply and high operating rates in 2025. Futures prices hit a new low since listing. Although the National Development and Reform Commission's cost assessment standards for disorderly price competition signaled policy support, driving a slight rebound in futures prices due to low valuations, this failed to reverse the weak market trend. In the short term, the weak pattern of high operating rates, high inventories, and weak demand persists, limiting near-term rebound potential. Medium-term focus should shift to the pace of capacity rationalization, the effectiveness of policy implementation, and shifts in export market competition dynamics. Supply-demand rebalancing remains a long-term process.

Heightened Conflict Between High Operating Rates and Losses; Supply-Side Expansion Cycle Nears Conclusion

2025 marks the final year of PVC capacity expansion, with 2.2 million tons of new domestic capacity bringing total production to 29.93 million tons by year-end—a 7.35% year-on-year increase. Ethylene-based production now accounts for 28% of total capacity, reflecting ongoing supply structure optimization. Estimated cumulative domestic production from January to December 2025 is projected at 24.5 million tons, a 4.52% year-on-year increase. Ethylene-based production growth is expected to reach 13%, with the concentrated release of new capacity further exacerbating market oversupply. Amid intensifying conflicts between high operating rates and losses, the global PVC capacity expansion cycle is nearing its end. In 2026, only Zhejiang Jiahua's 300,000-ton capacity is scheduled for mass production domestically, while overseas, only the UAE's 350,000-ton facility awaits commissioning. The industry is entering a phase of structural adjustment.

As of December 22, 2025, integrated chlor-alkali and calcium carbide-based PVC powder producers in Shandong recorded a gross margin loss of CNY 445/ton, though the loss margin narrowed. The overall PVC operating rate dipped slightly to 77.38% on December 19. However, constrained by plant safety requirements and annual production targets in Q4, the scope for further short-term capacity cuts remains limited. Overall, late December saw improved margins for integrated caustic soda and PVC powder operations, though Shandong may remain unprofitable. As losses widen, small-to-medium high-cost capacity has already undergone forced reductions. A wave of concentrated maintenance is expected in Q1 2026, potentially accelerating the exit of aging facilities (over 20 years old) in Xinjiang, Shandong, and elsewhere, gradually easing supply pressure.

Inventory pressure has reached extreme levels for this time of year. As of December 19, domestic PVC social inventory stood at 1.0568 million tons, a significant 31% year-on-year increase, with warehouse inventories in East China and South China at historic peaks. The concentrated release of new capacity in the fourth quarter has led to continuous inventory accumulation since July, with even the peak season of “Golden September and Silver October” failing to achieve effective destocking. As the Spring Festival approaches, downstream stockpiling is nearing completion, and the pace of inventory accumulation has slowed. However, with both corporate and social inventories at elevated levels, the destocking cycle is expected to extend into the second quarter of 2026, becoming the core factor suppressing prices.

Domestic Demand Boost Falls Short; Exports Emerge as New Growth Driver

Domestic demand weakness exhibits both cyclical and seasonal characteristics. With 60% of PVC downstream demand reliant on real estate, new residential construction starts in China's first 11 months of 2025 plummeted to 392 million square meters, down 19.9% year-on-year. National real estate development investment declined by 15.9% year-on-year. Commercial property transaction volumes in 30 major cities remained near multi-year lows. Downstream pipe and profile production capacity utilization rates dropped to 37.6% and 35.13% respectively—both below 40%—with further shutdowns expected before the Spring Festival, indicating limited demand resilience. Medium-term outlook: 2026, as the opening year of the 15th Five-Year Plan, will see some support from major infrastructure projects. However, with the real estate adjustment yet to bottom out and emerging sector demand growth, annual demand growth is projected at only around 2%, insufficient to absorb existing excess capacity.

The export market shows a divergent pattern. From January to October, cumulative PVC powder exports reached 3.23 million tons, a significant 49% year-on-year increase, as India's removal of anti-dumping duties and BIS certification policies opened up export opportunities. However, short-term export support has weakened. In December, export orders declined month-on-month due to factors like rising shipping costs. Moreover, the Indian market has seen intense competition from multiple countries, continuously squeezing export profit margins. In the medium to long term, overseas demand peaks in 2026 combined with stable Southeast Asian markets are expected to drive export volume growth of around 15%. However, heightened trade competition amid global overcapacity warrants caution, and exports' role in absorbing domestic inventory remains limited.

Losses Force Capacity Clearance, but Policy Support Lacks Immediate Effect

Current PVC prices are at historically low levels, plunging the entire production process into losses. Cost disparities have widened significantly: the comprehensive profit margin for chlor-alkali production in Northwest China has dwindled to just CNY250 per ton, while Shandong Province has already incurred losses of CNY600 per ton. The sustained decline in caustic soda prices has completely eroded the “alkali-to-chlorine” arbitrage effect, sharply increasing pressure for high-cost facilities to exit. On the policy front, beyond the National Development and Reform Commission's price oversight measures, the Anti-Unfair Competition Law now includes a “anti-cannibalization clause,” and the Ministry of Industry and Information Technology has initiated a campaign to phase out outdated petrochemical facilities.

Current PVC prices are at historically low levels, with the entire industry chain operating at a loss. Cost disparities are widening: comprehensive profits for chlor-alkali production in Northwest China have dwindled to just CNY250 per ton, while Shandong Province is already incurring losses of CNY600 per ton. The sustained decline in caustic soda prices has completely eroded the “alkali-to-chlorine” arbitrage effect, significantly increasing pressure for high-cost facilities to exit the market. On the policy front, beyond the National Development and Reform Commission's price oversight measures, the Anti-Unfair Competition Law now includes an “anti-cannibalization clause.” The Ministry of Industry and Information Technology has launched an investigation into outdated petrochemical facilities, targeting 2.85 million tons of overdue operational capacity and 2 million tons of long-idle capacity. Approximately 3 million tons of high-cost production capacity is expected to gradually exit the market, laying the groundwork for medium-term supply-demand improvement. However, policy implementation faces time lags, making it difficult to alter the supply-demand imbalance in the short term.

PVC: Short-Term Volatility with Bottom Formation; Mid-Term Awaits Structural Improvement

In the short term, PVC fundamentals remain unchanged. The market will continue to be dominated by the contradiction between high inventories, high operating rates, and weak demand, limiting the rebound potential of futures prices. However, current valuations have already reflected the reality of weak supply and demand, coupled with cost floor support, leaving limited room for further downside.

Medium-term outlook: By 2026, the industry will enter a phase of structural improvement characterized by capacity rationalization and moderate demand recovery. As high-cost capacity accelerates its exit, overseas peak demand seasons arrive, and infrastructure projects materialize, supply-demand tensions will gradually ease. Nevertheless, the industry's fundamental overcapacity issue requires large-scale capacity rationalization to achieve rebalancing. Key factors to monitor in January-February next year include the implementation of corporate production cuts and maintenance, the pace of real estate project resumption and infrastructure project kickoffs, and the delivery rhythm of export orders from India and Southeast Asia. Only when capacity reduction and demand improvement resonate together can PVC prices be expected to see a trend reversal.

As an integrated internet platform providing benchmark prices, on December 23rd, the SunSirs' benchmark price for PVC was 4268.00 RMBn/ton, a decrease of 4.13% compared to the beginning of the month (4452.00 RMB/ton).

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