The difficulty of destocking is still high, and PVC resin prices or oscillating operation are the main factors

Since July, the performance of PVC main contracts has been relatively strong, breaking the integer level of 6000 yuan/ton, and the 2309 contract has risen to a new high of 6092 yuan/ton in nearly two months. In terms of the industrial chain, the significant increase in PVC export order signing volume compared to the previous month and the promotion of raw material prices have brought a boost. Looking ahead to the future, although short-term policies have boosted market confidence, with the return of upstream construction and weak domestic demand, the loose supply pattern is still difficult to significantly improve, and PVC prices may fluctuate weakly.

Upstream supply return

In June, the domestic PVC powder production was 1.756 million tons, a decrease of 5.84% month on month and 3.71% year-on-year. The cumulative production from January to June was 11.0763 million tons, a decrease of 1.43% year-on-year. As of last week, the capacity utilization rate of PVC production enterprises decreased by 1.05 percentage points month on month to 72.39%, a year-on-year decrease of 8.25 percentage points; The preliminary production statistics show a decrease of 0.11% month on month and 3.04% year-on-year at 434000 tons.

Since July, upstream operating devices have continued to return, with a weekly loss of around 52500 tons last week. From the perspective of research and timeline, as of last week, the period of the fastest supply return may have largely passed, and the future market is expected to be mainly characterized by partial oscillation. Although the start of construction this year is at a relatively low level compared to previous years, due to the excessive increase in new production capacity in recent years, the overall production is still sufficient.

This week, the operating rate of downstream product enterprises was 44.53%, an increase of 0.14 percentage points month on month and a decrease of 3.16 percentage points year-on-year. The startup rate of PVC profiles was 38.13%, an increase of 0.62 percentage points month on month and 3.37 percentage points year-on-year; The start-up rate of PVC pipes was 45.18%, which remained unchanged month on month and increased by 7.45 percentage points year-on-year. The off-season factors such as high temperatures and rainy seasons have led to a slowdown in demand in the downstream PVC market. Currently, orders from domestic downstream product companies, such as flooring and pipe profiles, are weak, and overall construction has remained low.

Significant export volume

Recently, Formosa Plastics has also raised its quotation, with inquiries from domestic suppliers in India and other regions increasing, resulting in a significant increase in the number of signed orders from enterprises. Due to tight supply in the US market, prices have increased, and the industry expects the new quotation to increase by $10-30 per ton month on month, leading to a rebound in overall prices in the international market.

PVC production enterprises' export orders increased by 190% to 70000 tons month on month, and their export delivery volume increased by 60% to 40000 tons month on month. The cumulative backlog exceeded 155000 tons. However, due to the impact of the monsoon season in India, the demand for PVC resin powder is slowing down, so it is necessary to pay attention to the sustainability of domestic PVC resin exports. As of July 14th, the social inventory of PVC resin powder in China was 480200 tons, a decrease of 0.01% month on month and a year-on-year increase of 20.29%; Among them, the East China region accounted for 393300 tons, an increase of 1.30% month on month and 20.57% year on year; South China reached 86900 tons, down 5.54% month on month and up 20.29% year on year.

After the decline in supply in the early stage, upstream inventory performed well, continuing the pace of early destocking. Against the backdrop of a relatively loose supply and demand pattern, we believe that there is still a high difficulty in delegating the future market, and factors such as good supply and demand to increase demand need to emerge.

In summary, we believe that under the situation of loose supply and demand, the spot and market prices of PVC resin powder are expected to oscillate weakly. In terms of specific operations, it is recommended that investors seize the opportunity to sell short during high periods. The main risk points in the future market lie in exports and policy exceeding expectations.