At present, PVC is relatively strong in energy and chemical products, and is limited by the impact of crude oil and other bulk commodities. After a slight adjustment in the market outlook, there is still upward mobility. It is recommended that investors control their positions and buy mainly on dips.
After May holiday, the main line logic of market inflation trading and supply shortage is more obvious, and varieties such as thermal coal and rebar, which are more affected by the carbon neutral policy, have rapidly increased. In this context, the price of PVC also followed the upward trend. Among them, the PVC futures 2109 contract rose to a high of 9435 rmb/ton, and the price of East China calcium carbide type 5 also hit a new high in the past 20 years, rising to around 9450 rmb/ton. However, the upstream raw material varieties have risen sharply for many consecutive days, which has a serious impact on the profits of the middle and downstream production.
On May 12th, the State Council required an effective response to the excessively rapid increase in commodity prices and its collateral effects; on May 19, the State Council required comprehensive measures to protect the supply of bulk commodities and curb unreasonable price increases in response to market changes. Affected by the expectation of this policy, bulk commodities fell in the same day and night trading. The biggest decline of PVC that day was about 3.9%. However, compared with black building materials and some energy products, the adjustment range of PVC is quite limited. Can it be so strong in the future?
Worry-free demand within the year
From the perspective of supply, the output of various plastics has increased significantly in the first four months of this year. Taking PP as an example, the cumulative production of polypropylene pellets from January to April was 9,258,500 tons, an increase of 15.67% year-on-year; the cumulative production of polyvinyl chloride was 7.665 million tons, an increase of 1.06 million tons compared with the same period in 2020, an increase of 16.09%. In the second and third quarters, the average monthly domestic PVC output will remain at around 1.9 million tons. At the same time, due to the impact of overseas supply cuts during the Spring Festival, the direct export of PVC raw materials increased by approximately 360,000 tons year-on-year in the first three months of this year. In terms of overseas supply, international construction has gradually picked up, and it is expected to rise to a high point in the year from July to August. Therefore, from a month-on-month point of view, the supply of external disks is gradually increasing, and the author has also observed a certain correction in the price of PVC on external disks in the near future.
From the demand side, my country’s direct exports of PVC powder are mainly India and Vietnam, but the PVC export volume in May may be greatly reduced due to the weak demand caused by the Indian epidemic. Recently, the PVC India-China price gap has rapidly narrowed to around US$130/ton, and the export window is nearly closed. Later, the direct export of Chinese powder may weaken. Regarding the export of terminal products, according to the author’s observation, the US real estate is currently showing signs of weakness, but the economic trend is still there, and it is expected that the export of products can still be maintained. In terms of domestic downstream demand, first, the overall downstream start-up fell month-on-month, and the start of soft products fell more slowly; second, the start of PVC flooring declined significantly; third, the number of recent orders on hand continued to decline to about 20 days, and rigid demand was relatively strong; fourth, Guangdong Province Electricity rationing has already begun in some areas, which has a certain impact on the start of some manufacturing factories.
On the whole, domestic and foreign demand has slightly weakened compared with the previous month, but the cumulative increase of domestic real estate completed area in April was 17.9% year-on-year. The end demand for PVC is guaranteed, and the demand for glass at the back end of the real estate cycle is relatively prosperous. From this point of view, although the short-term demand for PVC is weakening, there is no worries about demand during the year.
Company’s inventory is low
At present, even if the demand for PVC weakens slightly from the previous month, the price of PVC remains strong. The core reason lies in the low inventory in the upstream, midstream and downstream. Specifically, the inventory days of PVC upstream manufacturers are at an extremely low level; in terms of midstream inventory, take the East China and South China sample social inventory as an example. As of May 14, the total inventory of the East China and South China sample warehouses was 207,600 tons, a year-on-year decrease of 47.68. %, at the lowest level in the same period in the past 6 years; downstream raw material inventory is maintained at about 10 days, and the inventory is neutrally low. The main reasons: On the one hand, the downstream manufacturing industry is more resistant to higher raw material prices. At the same time, high prices have caused a large capital occupation, and companies are not motivated to stock up; on the other hand, the number of days of downstream orders on hand has declined and the demand for stocking has declined.
From the perspective of upstream, midstream, and downstream inventory, low inventory, as the result of the interaction between the supply and demand sides, is an intuitive reflection of the previous demand boom and directly affects the current and future price game behavior of both parties. The low inventory of upstream manufacturers and traders has led to extremely strong quotations when facing downstream. Even in the period of price decline, the price is more confident, and there is no panic selling caused by high inventory. Therefore, the recent bulk commodities have been affected by the negative sentiment and the overall oscillating decline, but compared with other varieties, the price of PVC has shown a certain degree of resilience due to its strong neutral fundamentals.
The price of calcium carbide is higher
Recently, Ulan Chabu City, Inner Mongolia issued the “Letter on Budgetary Electricity Consumption for High Energy-consuming Enterprises from May to June 2021″, restricting the power consumption of high-energy-consuming enterprises within its jurisdiction. This policy has a significant impact on the supply of calcium carbide. Therefore, it is expected that the domestic calcium carbide price will remain at a high level, and the cost support of foreign calcium carbide-made PVC enterprises will be relatively strong. In addition, the profit of the external calcium carbide method is currently about 1,000 yuan/ton, the profit of the Northwest integration is about 3,000 yuan/ton, and the profit of the East China ethylene method is higher. Upstream profits are currently relatively high and the enthusiasm for starting operations is relatively high, while downstream manufacturing profits are relatively poor, but they can barely maintain operations. On the whole, the profit distribution of the PVC industry chain is not balanced, but there is no extreme imbalance. The extremely poor downstream profit leads to a significant decline in start-up, which is not enough to become the main contradiction affecting the price trend.
Outlook
At present, although there are signs of marginal weakness on the demand side of PVC, rigid demand still exists in the medium and long term. With the inventory of the entire industry chain at a low level, the price of PVC is relatively strong. For longer-term prices, we need to look at it from a higher level. While the global epidemic is still recurring, although the currency contraction caused by short-term inflation concerns is gradually rising, the Fed has frantically “expanded its balance sheet” in response to the epidemic crisis. The current round of the commodity bull market has not yet ended, and it will take time for prices to peak. For varieties with better fundamentals, there is still the possibility of further setting new highs in the later period. Of course, investors should also pay close attention to price fluctuations caused by domestic policy risks.
We believe that PVC is relatively strong in energy and chemical products, and is limited by the impact of crude oil and other commodities. After a slight adjustment in the market outlook, there is still upward mobility. It is recommended that investors control their positions and buy on dips.
Post time: May-28-2021