China PVC Monthly Report(August, 2022)

Key items of concern: 1. China RRR cuts and real estate policies on the demand side; 2: The impact of U.S. interest rate hikes on changes in international crude oil and China coal prices; 3: The disruption that Sichuan earthquake has on the supply side.

Core view: The slight improvement in fundamentals in August was mainly due to supply-side disturbances. From a macro point of view, commodity risks still exist in the expectation of overseas interest rate hikes in September. Basically, although good news about real estate has been released in China and there is a certain improvement for demand in the peak season in September, but there is still no obvious improvement in the demand side of PVC. Looking at the limited drive of the PVC market in September, it is expected to fluctuate weakly between 860-930US$/ton.

PVC price analysis: PVC prices first fell and then rose in August, down 4.4% mom.

In August, the overall price of PVC shifted downward, and the production enterprises received poor orders in the first half of the month, and gradually lowered the price, and the operating rate also decreased slightly. Then the orders received by manufacturers have improved slightly, and some factory have raised their price slightly. As of August 30, the price of East China calcium carbide method was 937 US$/ton (-42 month-on-month), and the East China ethylene method was 957 US$/ton (month-on-month-31).

PVC inventory: Although the inventory in August is in a trend of depletion, the absolute amount of inventory is still high. In September, the inventory may continue to be depleted slowly.

PVC supply side analysis: In August, the PVC maintenance period is coming to an end, and the operating rate in September is expected to increase. In August, the pre-sale of some factories have increased, but the inventory was still relatively high. It is expected that there will still be some sales and inventory pressure on the supply side in September.

In August, the amount of maintenance increased compared with that in July, and the overall operating rate fell. As of the week of August 26, the overall operating rate of PVC was 69.3% (-3.2% from last week); the operating rate of calcium carbide method PVC was 66.96% (-4.27% from last week); the operating rate of ethylene method PVC was 77.97% (+0.77% from last week). The number of PVC enterprises scheduled to be overhauled in September is reduced, and the operating rate of the PVC industry is expected to rise. The amount of maintenance increased significantly in August, and the maintenance loss was 338,640 tons (+13 tons compared with July, +19 tons compared with the same period last year), which is the largest month of maintenance loss this year. It is expected that the maintenance will gradually decrease in September.

The PVC production in August is expected to be around 1.76 million tons, -7.5% month-on-month and -5% year-on-year; the cumulative output from January to August is 14.97 million tons, -2% year-on-year. The planned maintenance in September is reduced, and the output in September is expected to be around 1.85 million tons. From January to July, the import of PVC was 177,000 tons, a year-on-year decrease. On the one hand, the rise in overseas crude oil brought the cost up, and on the other hand, the domestic demand was not good, and the domestic supply was loose. It is expected that the import in August will be around 20,000 tons.

PVC demand side analysis: Demand is expected to improve slightly in September. In August, PVC was still in the traditional small off-season, but as the off-season draws to a close, the terminal downstream demand may improve to a certain extent; due to the weak performance of the external market, domestic export orders were not received well, and the number of export orders to be delivered decreased.

As of the end of August, the downstream operating rate is 45% in the North China (-25% year-on-year), 52.75% in South China (-22% year-on-year), and 58.5% in East China (-7.5% year-on-year). August is still a low demand season, superimposed high temperature weather affects downstream construction, and the weak terminal orders make the overall downstream construction less enthusiastic.

Due to the rainy season in India and Southeast Asia, the demand for PVC powder in India and Southeast Asia in the third quarter will be significantly lower than that in the first and second quarters. The export volume of PVC in July was 176,900 tons, down 20.83% month-on-month and up 184.79% year-on-year. From January to July, the cumulative export of PVC was 1.42million tons, a year-on-year increase of 21.9%. As the external market continues to weaken, export orders have decreased, and the export volume to be delivered has dropped significantly. It is expected that the export volume in August will decrease significantly