The contradiction between supply and demand is difficult to ease, and the price trend of PVC futures is still under pressure

Over the past month, PVC futures prices have continued to fall, and market sentiment has been relatively depressed. On Wednesday, PVC futures fell below the 5,000 yuan/ton mark, reaching a low of 4,985 yuan/ton, a four-year low. Against the backdrop of most domestic commodity declines, the adjustment of PVC's current market is within expectations, but the extent of the price decline is beyond market expectations.

"From a full-year perspective, the price trend of PVC futures is basically a game between strong expectations and weak reality. The short-term price increase is more driven by policy expectations, but the improvement in fundamentals is limited. Once the short-term sentiment subsides and turns to the fundamental reality, the PVC market will show a downward trend." Dong Dandan, chief analyst of CITIC Construction Investment Futures Energy and Chemical, said that the recent increase in PVC futures positions is basically in line with market expectations, and the current high inventory problem of near-month contracts has not been resolved.

In this regard, Xia Congcong, head of Founder Futures Industry Research Center, believes that PVC's own fundamentals are weak, and there is no positive driver for the PVC market, whether from the cost side, supply side or demand side. In particular, the demand side has been sluggish since this year, leading to the intensification of the contradiction between market supply and demand. In addition, the market expectations are not good, and the recovery cycle of the demand side is prolonged, which is the main factor driving the continuous decline of PVC futures prices.

The recent record low of PVC futures prices is mainly manifested in the collapse of costs and the seasonal weakening of fundamentals. "As time goes by to December, the return of maintenance equipment makes PVC supply expected to rebound." Dong Dandan said that the winter construction material operation rate weakened month-on-month, and PVC demand is also expected to weaken. "The high prosperity of alumina has led to a sharp rise in caustic soda prices, and the comprehensive profit of chlor-alkali has been significantly restored. The valuation has risen, resulting in room for the bottom." She said.

From the market, it can be seen that since the fourth quarter, PVC futures have been the weakest variety among chemical products. Compared with other chemical varieties, the demand for PVC is more closely related to the real estate market. Under the background of "strictly controlling the increase in commercial housing", the decline in real estate construction data has led to a continuous weakening of PVC demand.

The reporter of Futures Daily learned that the export side has become an important support. However, India's preliminary anti-dumping ruling on PVC from China was implemented in November, and India's BIS certification policy for PVC is about to be implemented in December. Under multiple negative factors, my country's export volume is expected to decline, which further strengthens the pattern of "high inventory is difficult to remove".

"At present, the core contradiction of the continued weakness of PVC futures lies in the mismatch between supply and demand." Lu Jiaming, senior analyst of energy and chemical industry at Shenwan Futures, said that in recent years, China has introduced a series of policies for the real estate industry chain, and gradually achieved results. In the short term, the demand for PVC downstream and construction-related is still weak relative to supply. At the same time, the export of floor covering products in the past is also uncertain due to changes in the international trade environment. As a bright spot on the demand side, the export of powder is also affected by changes in India's policy expectations.

"Under the weak supply and demand, the market needs to balance through the contraction of the supply side." Lu Jiaming said that the actual results of the supply side this year are not very obvious, resulting in a weak trend in the PVC futures 2501 contract.

"From the perspective of staged performance, high inventory has become the norm in the PVC market, and high inventory reflects the increasing supply pressure." Xia Congcong said that whether it is the equipment maintenance season or the traditional peak season of demand, the PVC market has not started to destock, and the social inventory in East China and South China continues to be high. "The supply side is relatively stable, while the demand side is difficult to increase, and inventory consumption is slow. The high inventory pressure faced by the market remains unabated, and the PVC market continues to be sluggish." She said that at the same time, after the PVC market entered winter, downstream product factories maintained a low-load operation trend. As the temperature drops, the start-up of downstream in some areas will be restricted.

It is worth mentioning that, judging from the situation in previous years, the period before the Spring Festival is generally a low season for demand, but a peak season for start-up. Under the weak short-term supply and demand pattern, the market also has certain expectations for the accumulation of PVC again, which will lead to the weak performance of futures and spot.

In Dong Dandan's view, the factors that dominate the later trend of the PVC market are still the game between expectations and reality. "If the short-term supply recovery fails to meet expectations, and India further postpones the date of BIS certification in December, the price may stop falling and stabilize." Dong Dandan said that as far as the current situation is concerned, under the background of the comprehensive profit recovery of chlor-alkali, as time goes by, the high start-up of PVC has become a foregone conclusion, and the high valuation has dragged down the futures and spot prices, and the market needs to fall further to the discount spot to alleviate the current warehouse receipt pressure. Both the market and the spot basis are expected to weaken further.

Similarly, Xia Congcong also believes that the current PVC market participants are cautious, and the overall expectations are not good. After demand enters the off-season, the PVC market inventory may still rise. "The contradiction between supply and demand in the short-term market is difficult to be alleviated, and the trend of PVC futures is still under pressure."

However, the market always breeds hope in pessimism. "After the continuous decline of the current PVC futures 2501 contract, the pressure on the valuation side has been released more obviously. At the same time, from the perspective of the 1-5 price difference, it is conducive to the near-month contract to stop falling and stabilize." Lu Jiaming said that the market may be more looking forward to the re-digestion of supply and demand after reaching a balance in December, which will leave room for the operation of the far-month contract next year.