On March 23rd, the domestic PVC market experienced a unilateral strong trend, with the main futures contracts soaring significantly, while spot prices rose synchronously but not as much as futures, presenting an overall pattern of “futures leading the rise, spot prices following the rise, cost leading, and weak demand”. The core driving force behind this round of price increases comes from the continued escalation of geopolitical conflicts in the Middle East, which has led to a surge in raw material costs. Coupled with the expectation of supply contraction caused by domestic spring maintenance, weak downstream demand, high price resistance, and high social inventory have become the core obstacles restricting the sustained rise in prices. The market’s long short game focuses on the mismatch between costs and fundamentals. According to the Commodity Analysis System of Shengyi Society, the market price of PVC SG-5 in East China is reported at 6063 yuan/ton, with a daily increase of 6.9%. Core driver: Violent cost side price increases, supply side contraction expectations strengthened
| Gamma-PGA (gamma polyglutamic acid) |
1. Geopolitical factors drive the increase in raw material costs, with ethylene becoming the core driving force
The tense situation of shipping in the Strait of Hormuz in the Middle East continues, and the high level of international crude oil directly drives the price surge of the ethylene industry chain, becoming the most core driving force for the rise of PVC. The CFR Northeast Asia ethylene price has surged by over 90% since the end of February, and the domestic East China ethylene listing price has also increased significantly, with the increase exceeding 65%. The production cost of ethylene based PVC has sharply risen, and some ethylene based plants have been forced to reduce production or even shut down due to raw material shortages and cost inversion. The expectation of tight raw material supply has completely ignited the bullish sentiment in the market. At the same time, the price of calcium carbide has risen synchronously, with smooth shipments from calcium carbide factories and low inventory levels. The factory price has continued to increase, further consolidating the cost support of calcium carbide method PVC. The cost center of the two types of processes has also shifted upwards, driving up the overall valuation of PVC. According to data from Shengyi Society, the price of calcium carbide increased by nearly 10% in March.
2. Spring maintenance gradually landing supply side pressure marginal relief
The supply side is showing a structural contraction trend. Currently, the overall operating rate of the PVC industry is about 80%, with a slight increase compared to the previous period, mainly offset by a slight rebound in the operating rate of carbide process equipment; The operating rate of the ethylene process has significantly decreased to 70%, and spring maintenance has gradually entered an intensive period. The loss of equipment maintenance continues to increase, and the market’s expectation of further supply contraction in the future remains strong. Although the overall supply is still at a neutral to high level, reduced production and increased maintenance of equipment have effectively alleviated the pressure of oversupply in the early stage and provided fundamental support for price increases.
2、 Supply and demand contradiction: insufficient demand follow-up, high inventory, and continued suppression
The weak performance on the demand side makes it difficult to match the skyrocketing pace on the cost side, resulting in a clear supply-demand mismatch. Although downstream pipe and profile enterprises have slowly rebounded in production, they have strong resistance to high priced PVC, and their performance in new orders is poor. Most enterprises mainly focus on replenishing inventory for essential needs and dare not hoard large quantities, which hinders the transmission chain of prices. Although the export side has slightly increased its acceptance of high prices, forming a certain demand support, it is difficult to completely offset the weak domestic demand gap. The overall demand side can only play a bottom support role and cannot promote sustained unilateral price increases.
The inventory side is still a potential pressure in the market. Although social inventory continues to slowly deplete, the absolute value is still at a historical high level. The pattern of high inventory has not fundamentally changed, and the subsequent destocking rate will become a key indicator affecting the sustainability of the market. If downstream demand continues to be sluggish and destocking slows down, it will directly constrain the upward space of PVC spot prices.
3、 Market outlook: Short term strong operation, alert to the risk of sentiment decline
In the short term, the core trading logic of the PVC market still revolves around the cost increase and supply contraction caused by the geopolitical situation in the Middle East. The strong support on the cost side has not dissipated, and the expectation of supply contraction is still present. Prices are prone to rise but difficult to fall, and the short-term PVC spot market is likely to maintain a strong and volatile pattern. In the medium term, if the geopolitical premium gradually subsides and raw material costs fall, coupled with the suppression of high inventory and weak demand fundamentals, the upward momentum of PVC prices will gradually weaken, and it is likely to return to the oscillation trend dominated by supply and demand fundamentals. It is necessary to closely track the marginal changes on the cost and demand sides.
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