SunSirs: Intensifying Supply-Demand Tug-of-War; China PVC Market Fluctuations Narrow

Last week (May 11–15), the domestic PVC market maintained a volatile trend. Futures contracts fluctuated significantly, driven by policy stimuli, while the spot market maintained a weak equilibrium characterized by "rigid demand." The pattern of weakness in both supply and demand remained unchanged, and the market currently exhibits characteristics of bottoming out in the short term.

I. Price Trends: Futures on a "Rollercoaster," Spot Prices Stalled at Low Levels

Last week, the benchmark PVC futures contract experienced violent fluctuations; the spot market tracked these movements but with limited amplitude. As of 3:00 PM on May 15, the benchmark futures contract was quoted at 5,027 RMB/ton, with a weekly fluctuation range reaching 4.1%. In the spot market, the mainstream quotation for East China carbide-based SG-5 PVC was 4,890–4,980 RMB/ton; weekly fluctuations were less than 100 RMB, exhibiting a pattern of "strong volatility in futures, weak follow-through in spot prices." According to the SunSirs Commodity Analysis System, the weekly decline for East China carbide-based SG-5 spot prices stood at 1.62%.

II. Supply and Demand Fundamentals: Limited Supply Contraction, Persistently Sluggish Demand

Supply Side: Spring Maintenance Reduces Operating Rates; Ethylene-Based Production Weighs Heavily

Last week, the overall operating rate for PVC production hovered around 70%, showing little change from the previous week; supply pressure therefore remained relatively high. Operating rates for ethylene-based PVC production declined somewhat, primarily because high ethylene feedstock prices led to corporate losses, forcing companies to lower operating rates to alleviate financial pressure. Operating rates for carbide-based PVC production remained between 70% and 80%; current maintenance efforts by enterprises are moderate and have had little impact on the market, suggesting no major variables on the supply side in the near future. Regarding inventory, social inventory levels remained high—particularly following the recent holiday period, during which the market saw some inventory accumulation. With supply increasing rather than decreasing, some enterprises were compelled to lower their prices. Given the currently sluggish demand, it remains difficult to effectively alleviate the pressure stemming from high inventory levels and ample supply.

Demand Side: Downstream Sector Remains Weak; Export Resilience Offers Limited Offset

The demand side continues to be the primary constraining factor for the market. This week, the average operating rate for downstream industries fell below 35%—a ​​significant decline from the previous week—marking a new low for the year to date. Operating rates in downstream PVC sectors—such as pipes and profiles—are generally running below 30%; the primary reason is the sluggishness of the real estate industry, which has led to a severe contraction in orders.

While domestic demand remains weak, export performance has been somewhat better than expected. Although the previous export tax rebates have been abolished—bringing an end to the wave of "rush exports"—external demand currently continues to demonstrate a certain degree of resilience. Exports to India, in particular, remain at consistently high levels. Furthermore, as overseas production facilities successively enter their scheduled maintenance periods, demand for Chinese PVC remains elevated. To a certain extent, external demand has helped offset the shortfall in domestic demand; however, in terms of overall volume, it is insufficient to reverse the prevailing pattern of weak aggregate demand.

III. Cost Side: Low Carbide Prices Widen Losses for Ethylene-Based Production

Last week, carbide prices continued to hover near a relative bottom. According to the SunSirs Commodity Analysis System, carbide prices saw a weekly increase of 2.15%; however, when viewed in the context of the price trend curve, they remain situated at a cyclical low point. Consequently, cost-side support for PVC prices has weakened. Meanwhile, ethylene feedstock prices remain elevated, causing ethylene-based PVC producers to incur sustained losses. These enterprises have a strong incentive to reduce operating loads and cut production; while they are indeed scaling back supply, these actions are unlikely to exert any significant impact on the overall market landscape.

IV. Market Outlook

PVC analysts at SunSirs anticipate that, in the short term, the PVC market will continue to exhibit a pattern of range-bound fluctuation as it attempts to establish a market bottom. On the supply side, spring maintenance shutdowns are ongoing, and there remains further room for downward adjustments in operating rates for ethylene-based production facilities. Supply is therefore expected to continue contracting; however, in the short term, this is unlikely to fundamentally alter the current market landscape characterized by high inventory levels. On the demand side, the traditional "off-season" for end-use sectors persists—particularly within the real estate industry—meaning that demand remains a bearish factor for the market. Overall, amidst the ongoing interplay between supply and demand, the recent fluctuation range for PVC prices may narrow further, though the prevailing pattern of overall market weakness is expected to remain unchanged.

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