In 2021, under the influence of the cold wave in the United States, driven by the sharp increase in exports, the dual control of domestic energy consumption, the dual carbon policy, and the regulation of coal prices, PVC experienced a historical surge and slump, and the price reached a record high, with a fluctuation range of nearly 100% in the year.
On the supply side, the newly added capacity in 2021 is less than 500000 tons, and the actual growth rate is less than 2%. Although more production capacity is planned in 2022, it is expected that only Shandong Xinfa, Julong chemical and Qingdao Haijing are likely to be put into operation. The landing capacity is expected to be about 1 million tons, with an actual growth rate of about 4%. Ethylene method is the main method, and the new supply pressure is still small. The stock supply may continue to be disturbed by the dual control of energy consumption, the dual carbon policy and overseas demand.
On the demand side, as the domestic PVC terminal demand is mainly concentrated in the real estate and infrastructure industries, the regulation of real estate policies has been significantly strengthened since 2021. Due to the great impact on the market, the policy level has made marginal relaxation in terms of capital supervision and enterprise financing. Expected 2022. Meanwhile, the newly increased export demand for flooring in recent years continues to perform brilliantly, with a year-on-year increase of about 20% in the first 10 months of 2021. With the continuous support of the concept of environmental protection, it will continue to maintain a steady growth rate in 2022. In addition to product demand, in 2021, due to the impact of the cold wave on the U.S. market, the PVC supply side had a great impact, and the domestic daily export from March to may resolved the pressure of domestic supply and demand. The pattern of PVC import and export trade has changed. Although it returns to normal after the impact of extreme events, the short-term disturbance in the overseas market should continue to be concerned in 2022.
In terms of calcium carbide at the raw material end, affected by the dual control of energy consumption, the price reached a record high in 2021, and its industrial profit also rose to a new high. But after the noise, it calmed down. At the policy level, stabilize coal prices, do not engage in sports carbon reduction, and gradually guide calcium carbide prices to return to a reasonable range. However, the calcium carbide industry is still in a cyclical tight balance, which will still constitute a strong support for the cost end of PVC.
From the external environment, the Fed's interest rate hike is approaching in 2022, and the withdrawal of monetary easing policy has an obvious negative effect on the financial market. However, there are differences between China and the outside world. China is expected to maintain a stable or even slightly loose monetary policy. It is difficult to be optimistic about the global epidemic situation, and the repeated variation of the virus still leads the market nerves in stages.
To sum up, supply and demand may remain relatively balanced in 2021, but the cost side valuation of calcium carbide will still be disturbed by policy adjustment, and the macro environment is cautious and empty.
1、 Market Review
Looking back on the trend of PVC in 2021, a historic market with large fluctuations was staged, with the annual amplitude of the index as high as 92.7%. In October, the price of main contracts exceeded 10000 points, a record high since its listing in May 2009. Due to the continuous sharp decline from October to November, the annual increase narrowed, and the PVC index increased by less than 20%. Specifically, the market experienced a short shock in January. In February, affected by the cold wave weather in the United States, most PVC plants in the United States were shut down, the overseas supply and demand situation was suddenly tense, and the domestic export window continued to open; On the other hand, among the "double control" assessment results of the total energy consumption and intensity of each province in 2019, only Inner Mongolia was criticized because it was not completed. In March, Inner Mongolia had strict supervision on high energy consuming industries, the supply of calcium carbide fell rapidly, the price of calcium carbide soared, and the price in the northwest even reached 5000 yuan / ton, greatly raising the cost of outsourcing calcium carbide method. Moreover, the purchased calcium carbide enterprises also had no raw materials available in stages, so they were forced to reduce the operating rate and further reduce the PVC supply. In April, with the slightly loose power restriction in Inner Mongolia, the maintenance of PVC enterprises led to the decline of calcium carbide demand, the continuous correction of calcium carbide price, the weakening of cost support and a certain degree of correction on the disk. After the middle of the year, the crude oil price stabilized and rebounded, and on April 15, Ningxia autonomous region issued a notice on the target tasks and key work arrangements for dual control of total energy consumption and intensity in 2021, which mentioned that the energy consumption per unit added value of Industrial Enterprises above the designated level would be reduced by 4% in 2021, and the price of calcium carbide would rise again. Dual control radiates from Inner Mongolia to Ningxia, but the calcium carbide production capacity in Ningxia is less than that in Inner Mongolia (about 30% in Inner Mongolia and about 13% in Ningxia), and the impact is relatively limited. From April to June, the upstream PVC is in the maintenance season as a whole, the demand for calcium carbide is down, and the price of calcium carbide is high and volatile as a whole. In addition, the superimposed overseas PVC devices are gradually restored, the export window is gradually closed, and other domestic commodities are also adjusted in a round. The overall PVC panel is in a wide shock pattern. Since July, PVC began to show strong coal chemical properties. Under the background of good demand and shortage of supply, the gap between domestic coal supply and demand has expanded, and coal prices have begun to ignore the call of national policies and start a crazy rise mode. At the same time, with the dual control of energy consumption and the promotion of the dual carbon policy, the commencement of calcium carbide enterprises has been suppressed for a long time. Moreover, due to the rise of coal price and electricity price, the cost of the industrial chain has risen from top to bottom, and the price of calcium carbide has even reached an all-time high of more than 8000. PVC also rose with the trend. Since mid September, it has increased by more than 40% in just one month, and the maximum number of main contracts reached 13380. However, with the strong regulation and guidance of the national policy level on coal prices, all coal chemical commodities fell sharply. At the same time, in this process, the sports carbon reduction was also corrected, and the upstream enterprises began to gradually return to normal operation. From the aspects of cost drive and supply and demand, the high price logic of PVC was corrected. By December, the disk price fell back to the previous normal level and fluctuated in the range of 8000-9000.
2、 Fundamental analysis
（1） Supply maintained a low growth rate
Looking at the changes in production capacity in recent years, since 2015, the elimination of backward production capacity has been relatively strong, and the growth rate of production capacity has declined sharply. In recent years, the growth rate of new capacity has remained at a low range of 2-5% for most of the time. According to statistics, the annual increment mainly comes from the 400000 T / a ethylene process unit Yantai Wanhua, 400000 T / a Qingdao Haijing and 200000 t / a calcium carbide process Gansu Xinchuan at the end of 2020; At the beginning of 2021, 60000t / a of calcium carbide process was put into operation in Jinchuan, Gansu Province, 300000 t / a of ethylene fajiahua energy (600273), 60000t / a of Shanghai chlor alkali ethylene process special resin and 100000 t / a of Dezhou Shihua type 7. The growth rate of actual new capacity in 2021 was less than 2%. According to the 2022 plan, Julong chemical's 400000 T / a ethylene method is planned to be put into operation from spring to mid year, Shandong Xinfa's 400000 T / a calcium carbide method is planned to be put into operation from March to April, Jintai chemical's 600000 T / a calcium carbide method is planned to be put into operation in the second quarter, Qingdao Haijing's 200000 t / a ethylene method is planned to be put into operation in the third quarter, and Zhonggu mining's 300000 t / a calcium carbide method is planned to be put into operation in 2022, Huayi Qinzhou 400000 T / a ethylene process is planned to be put into operation by the end of 2022, and Xinpu chemical 500000 T / A is planned to be commissioned in late 2022. Although many units are planned to be put into operation, the actual situation is that the operation is delayed repeatedly than expected every year. It is expected that the production capacity with relatively high certainty will be around 1 million tons, with a growth rate of about 4%.
From the performance of upstream operating rate in 2021, the first half of the year is at the highest level in recent years, which is also due to the good export demand and the high enthusiasm of upstream production. After July and August, it declined rapidly, and the dual control of energy consumption became stricter. Calcium carbide production in Inner Mongolia, Ningxia and other places was suppressed. Due to the lack of raw materials for outward mining calcium carbide devices, they were forced to reduce the load. At the same time, due to the sharp rise in the price of raw materials calcium carbide, some PVC devices suffered losses and stopped to reduce the load. However, overall, the upstream production performance was acceptable throughout the year.
In terms of output, according to Longzhong statistics, the annual PVC output in 2020 was 20.7364 million tons, an increase of 4.47% year-on-year. Among them, calcium carbide method increased by 3.47% and ethylene method increased by 9.14%. By November 2021, the annual cumulative output was 20.3353 million tons, an increase of 8.23% year-on-year. Among them, calcium carbide method increased by 4.51% and ethylene method increased by 27.12%. It can be seen from the above data that the output growth rate of ethylene method is significantly higher than that of calcium carbide method in recent two years. The main reason is that on the one hand, the calcium carbide method has high power consumption and does not meet the requirements of energy consumption control, on the other hand, it has great pollution of mercury catalyst in its own process. Therefore, the capacity and output growth of ethylene method will continue to be higher than that of calcium carbide method in the long run.
Overall, the growth rate of new capacity will remain low in 2022, and the stock supply will continue to be disturbed by the dual control of energy consumption and dual carbon policy.
Import and export:
From January to October 2021, PVC powder imported 333800 tons, down 61.61% month on month. On the one hand, the import volume will be large in 2020, and the base will be increased. On the other hand, the overseas market price will be high in 2021, with more import windows and more closing time. In terms of export, from January to October, the cumulative export of PVC powder was 1.4474 million tons, a sharp increase of 325.26% year-on-year. During the Chinese Lunar New Year, affected by the cold wave weather in Texas, the petrochemical plant was shut down in a large area, and the PVC price in the United States rose sharply. This has led to a gap in global PVC demand, which has been made up by a large number of imports from China by overseas demand countries, which has changed the global trade pattern. In particular, the export volume in the three months from March to may reached a daily volume, exceeding 200000 tons in a single month. The export window was closed in May, and then the export volume decreased. The main export contribution comes from India, Vietnam, Bangladesh and other countries in Southeast Asia. From this perspective, the pattern of PVC import and export trade may also change. In the past, it was biased towards self-sufficiency, but it has obviously begun to participate in the adjustment of the global supply and demand balance since 2020.
（2） Demand or weak
From the macro level, the downstream demand for PVC is closely related to the real estate industry. It mainly focuses on the five indicators of completed real estate investment, housing construction area, newly started housing area, completed housing area and commercial housing sales area. It mainly focuses on the post cycle demand of real estate, that is, the door and window profiles and membrane floors in the completion and decoration stages.
For the real estate industry, with the strengthening of policy regulation in 2021, the industry fundamentals enter a downward cycle. Since the second half of the year, sales have declined, local auction has been cold, and the industry is in a liquidity crisis. The policy has a wide range of regulation and control and great efforts. Real estate enterprises have been under great pressure under the strict control of the policy. The credit risk of some real estate enterprises has been continuously exposed, which has a great impact on the market supply and demand expectations. Subsequently, the marginal relaxation of the policy was forced. There has been marginal relaxation in mortgage loan issuance, pre-sale fund supervision and enterprise financing. The policy has a "turning point" before the fundamentals, but it is expected that the policy direction will still be based on the principle of underpinning but not stimulating. It is not difficult to see from the real estate data that the growth rate of new housing construction area and commercial housing sales area has decreased significantly. The contraction of new construction is expected to suppress the sales volume in 2022. With the superposition of the impact of the real estate tax pilot, the overall sales continue to be under pressure, which still has a negative impact on the post PVC cycle. However, due to the influence of the base in 2021, real estate sales in 2022 may show a trend of low before high. The construction and completion and the continued downturn in land market transactions are expected to suppress new construction in 2022, and the scissors gap between new construction and sales area remains high.
In terms of infrastructure construction, the cumulative growth rate of infrastructure construction investment in 2021 shows a unilateral downward trend month by month. From January to November, the cumulative growth rate was - 0.17%, turning negative for the first time. However, it is expected that the growth rate of infrastructure investment, as an important starting point of cross cycle adjustment policy, is expected to rebound under the requirements of physical workload formed by the end of 2021 and the beginning of 2022. CICC believes that in the field of infrastructure investment, it is expected that the government investment expenditure will be moderately advanced in early 2022, and the relevant bonds may be issued in advance, superimposing the new construction of major projects under the 14th five year plan, supporting the rebound of infrastructure investment. However, under the guidance of "resolutely curb the new implicit debt of local governments", the rebound of traditional infrastructure may be limited, It is estimated that the growth rate in 2022 will be about 4-5%, but the growth rate of public utility investment may reach about 10%, and the broad infrastructure investment in the whole year may be about 6% (if the requirements for supporting funds are moderately relaxed, it may rebound to about 8%).
In recent years, the market has paid more attention to the floor export, a new growth point of PVC demand, and the export object is mainly for Europe and America, especially the United States, accounting for more than half. With the enhancement of environmental protection awareness, PVC flooring has gradually replaced traditional wood flooring, carpet and other floor decoration materials in developed areas in Europe and America, and is widely used in residential and commercial office facilities. The export volume of PVC flooring products in China to these countries has also increased year by year, from 1.4 million tons in 2014 to 4.92 million tons in 2020. From January to October 2021, the cumulative export of PVC flooring was 4.724 million tons, with a year-on-year increase of 20.14%. Except for a slight decrease in January, all other months increased year-on-year. In recent four years, the growth rate has exceeded 20%. According to the data published in the reports of listed companies such as walrus new materials and Ellie home, the proportion of PVC powder per ton of PVC floor is about 17-32%. If calculated according to the average value of about 25%, it is expected to account for about 7% of PVC powder consumption. According to the report of market and markets, the scale of the global floor decoration material industry in 2018 was about USD 339.3 billion. Assuming that the growth rate of the global floor decoration material industry remained 5% in 2019 and 2020, and then the growth rate gradually decreased to 3%, the scale of the industry is expected to reach USD 470.6 billion by 2027. The emerging materials represented by PVC plastics have gradually occupied an important position with their advantages of green environmental protection, recyclable use and convenient pavement. According to the research data of UBS and HJ research, in 2015, the sales volume of vinyl plastic flooring in the global market reached US $21.25 billion, and its sales volume accounted for about 8% of the global floor decoration market. Assuming that its proportion will gradually increase to 8.4% by 2027, the sales volume of global PVC flooring industry will reach 30.84 billion yuan in 2021 and nearly 40 billion US dollars in 2027. Therefore, in the medium and long term, the export demand of PVC flooring is still guaranteed.
（3） Inventory situation
In terms of social inventory, 2021 also showed a seasonal trend of first rising and then falling, and it was basically at the lowest level in recent years from January to September, which also benefited from the great volume of exports. Then the exit window closes and the small barrier library starts. Domestic demand also entered the seasonal off-season, and the inventory was on the high side in the same period in December.
（4） Industrial chain
1. Calcium carbide
From the distribution of domestic calcium carbide production capacity, it is mainly concentrated in Inner Mongolia, Xinjiang, Ningxia, Shaanxi and other places, and the four provinces account for 86% of the production capacity. Calcium carbide production capacity tends to concentrate on energy and resource producing areas. For Inner Mongolia and Ningxia, due to the large supply of calcium carbide to other provinces, and the significant impact of double control limit films in 2021, the load is reduced from time to time, which has greatly affected the commencement of outward mining calcium carbide enterprises. At the same time, the price of calcium carbide has also risen to an all-time high of more than 8000 yuan. It can be seen from the downstream application field of calcium carbide that 80% is used for PVC, and the concentration is too high, resulting in a very close correlation between calcium carbide and PVC. Secondly, the BDO industry accounts for a high proportion of applications. It is estimated that there will be 3 million new capacity in 2022, which can consume some calcium carbide and some new capacity.
As can be seen from the calcium carbide production capacity in recent years, with the tightening of national environmental protection inspection, the calcium carbide industry has eliminated more backward production capacity, which has declined rapidly since the growth rate reached the peak in 2012. In 2014, the calcium carbide industry access conditions were promulgated to raise the industry access threshold and curb low-level redundant construction and blind expansion. The basic growth rate in 2016 and beyond is zero or even negative. According to statistics, 6.99 million tons of backward production capacity were eliminated in 2016-2019. However, 7 million tons of calcium carbide units are still in shutdown and semi shutdown for a long time, mainly including more than 2 million tons of new units and more than 4 million tons of internal combustion and enterprise units without competitive advantage. According to the statistics of calcium carbide industry association, the current domestic effective capacity of calcium carbide is basically maintained at 33-34 million tons, and the remaining 6-7 million tons of capacity is basically in the situation of shutdown and semi shutdown for a long time. In the catalogue of safety production process technology and equipment for eliminating backward hazardous chemicals (the first batch) [emergency department (2020) No. 38] issued by the general office of the emergency management department, the "open and internal combustion calcium carbide furnace" is included in the name of eliminating backward process technology and equipment, which will take effect as of October 23. At the same time, all internal combustion calcium carbide enterprises will face the current situation of transformation, transformation and elimination in the near future. However, it can be seen that although the production capacity is declining, the output of calcium carbide has indeed increased since 2018, mainly due to the increased demand for calcium carbide after the start-up of PVC plant and the continuous improvement of utilization rate of calcium carbide furnace.
In terms of output, it will maintain low-speed growth after 2014. It is understood that the output of calcium carbide may be around 28 million tons in 2021. In 2022, although there is still a certain increase in production capacity, BDO production capacity is also newly added in the downstream. Therefore, the calcium carbide industry as a whole is still in a tight balance. For the dual control of energy consumption and dual carbon policy, although the sports carbon reduction has been corrected, the sustainability of the policy still exists. The irregular power rationing in Inner Mongolia and other regions will still have a significant impact on the price and supply of calcium carbide. Of course, due to the strict control of coal prices at the national policy level, it is less likely that calcium carbide prices will rise sharply in 2021.
2. Profit valuation
As the main production cost of PVC by calcium carbide method comes from calcium carbide (1 ton of PVC consumes about 1.4 tons of calcium carbide), and more than 3000 kwh of electricity is consumed in the cost of calcium carbide, followed by blue carbon. Therefore, the cost is mainly closely related to electricity price and coal price. On October 12, the national development and Reform Commission issued the notice on further deepening the market-oriented reform of on grid electricity price of coal-fired power generation, which made it clear that the on grid electricity price of all coal-fired power generation will be liberalized orderly from October 15, and the fluctuation range of market transaction electricity price will be expanded. The pattern of "market coal" and "market electricity" will be formed, and the on grid electricity price will be formed within the range of "benchmark price + fluctuation", and the coal electricity market pattern of "market coal" and "market electricity" will be formed. At the same time, expand the scope of transaction price fluctuation in the coal-fired power generation market. From the current floating rate of no more than 10% up and no more than 15% down in principle, it is expanded to floating rate of no more than 20% up and down in principle, while the market transaction price of high energy consuming enterprises is not limited by floating rate of 20%. This is more obvious for the self generation cost advantage of Northwest integrated enterprises. In 2021, due to the tight supply and demand of power coal, there was a large-scale power shortage across the country. The move of raising the electricity price in Inner Mongolia Valley virtually too high the cost of calcium carbide, which was transmitted to PVC. However, under the state's measures to ensure the supply and price of coal, the coal supply has gradually increased, and it is expected that there will be no excessive imbalance between supply and demand in 2022.
From the profit performance of the industrial chain in 2021, the profit of calcium carbide also reached a new high of more than 2000 yuan in October, while the PVC enterprises using calcium carbide method have declined significantly, and the profit of the industrial chain is abnormal and difficult to develop for a long time. With the rapid decline of calcium carbide price, there is also a seesaw effect between calcium carbide profit and outsourcing enterprises.
3、 Price difference analysis
From the basis trend in recent years, it has remained in the normal range of ± 200 yuan for most of the time. However, it has fluctuated sharply since 2020, and its basis reached a high of 1000 in the fourth quarter. In 2021, under the background of soaring black and coal chemical commodities, the basis reached a historical high of nearly 2000 yuan. With the policy regulation, the spot price fell more, and the basis was gradually restored to a reasonable level. The price difference between ethylene method and calcium carbide method also fluctuated sharply in 2021, which was basically similar to the basis difference, but there was a time difference. After the price of calcium carbide method fell rapidly, the price difference increased greatly. With the follow-up decline of ethylene method price, the price difference returned to normal. However, in the medium and long term, the new production capacity is dominated by ethylene method. In the later stage, the pattern of high proportion of calcium carbide method and low proportion of ethylene method will change, and the price difference between ethylene method and calcium carbide method may narrow.
4、 Conclusion and operation strategy
Looking forward to 2022, the new capacity at the supply side is expected to remain low-speed and dominated by ethylene process, while the stock supply fluctuates due to the stability of calcium carbide supply at the raw material side and the impact of export; In terms of demand, the export demand of flooring still has a positive contribution, but due to the domestic real estate policy is expected to be based on the principle of supporting the bottom but not stimulating, the terminal demand or maintaining rigid demand is slightly weak. On the cost side, calcium carbide is still a commodity in a cyclical tight balance, and its supply and price will still be disturbed by the policy. However, due to the central downward movement of coal price under policy control, it is difficult for calcium carbide price to rise again. The overall performance is that supply and demand are relatively balanced, but the valuation is still disturbed by policies. It is expected that the market volatility will decline and the price center will move down in 2022. However, supported by the cost of calcium carbide, the bottom will also rise compared with previous years, and the main contract may fluctuate in the range of 7000-9000.
