Core viewpoints
From the perspective of PVC supply and demand, the supply side increase is limited, but in view of the industry profit pressure, the capacity utilization rate may decline. However, if the profit is restored, the PVC supply side has a large elastic space. On the demand side, under the pressure of overseas recession, foreign demand is expected to decline, but domestic real estate policies continue to release in order to make up for export shrinkage through domestic demand. However, according to the previous judgment on the path of real estate repair, the speed of real estate demand boosting may be slow in the first place and fast in the second. Combined with the current accumulated high level of PVC factory warehouse+social warehouse, the post holiday inventory will only be higher. If the post holiday demand is less than expected, the PVC storage pressure may fall back
1、 Review of PVC market in 2022
From the fluctuation range of main PVC contracts and the maximum position of active contracts in the past five years, the activity or attention of PVC varieties has increased significantly since the COVID-19 epidemic. The change of domestic supply and demand pattern driven by the export release, the cost driven market caused by extreme policies for raw calcium carbide, and the pessimistic market demand caused by the real estate thunderstorm led PVC to walk out of the volatile market.
Looking back to 2022, the demand before the Spring Festival is expected to lead to a decline in PVC inflation due to the falsification after the festival. The conflict between Russia and Ukraine in March triggered speculation in crude oil and other commodities, and PVC moved up along with the focus of chemicals. However, the domestic PVC industry is mainly coal chemical industry, and the low cost drive has led to the high profit and increased risk of overvaluation.
In the second quarter, the prices of PVC manufacturers rebounded after falling. Macroscopically, the Federal Reserve's interest rate hike triggered recession concerns, and Shanghai was closed down due to the epidemic. Inventory is difficult to be seasonally depleted under pessimistic demand. However, in terms of policy, the annual GDP growth target of 5.5% gave bulls confidence, so Shanghai stopped falling and rebounded at the end of May when it was unsealed.
In the third quarter, the domestic black sector fell sharply, the demand replenishment logic was falsified, and the PVC social inventory accumulated against the season. The wait-and-see sentiment in overseas markets is getting stronger and the export support is weakening. In view of the short real estate logic, the fund takes PVC as an empty allocation variety. During the decline from June to the end of October, the profits of PVC made from calcium carbide at home and abroad suffered a deep loss, and the profits of chlor alkali integration in northwest China were challenged.
By the beginning of November, the PVC fundamentals had improved marginally. Specifically, due to the profit pressure of production enterprises, the industry started at a low level in the same period. However, due to poor transportation, the social inventory has been reduced for two consecutive months, and the inventory pressure has decreased month on month. At the beginning of December, the overseas market ushered in an explosion of demand, and Indian buying actively supported the external price. In addition, the market revalued the bottom of PVC price under the loosening of epidemic control and the frequent occurrence of real estate policies. However, due to the current weak demand, the market rebounded sharply and the spot price once turned into a discount.
2、 PVC industrial chain related products
(1) Calcium carbide: downstream pressure is high, and supply and demand expectations are loose
Reviewing the main driving factors of PVC in 2022, calcium carbide has little influence on PVC. Although the profits of PVC produced by the external calcium carbide method have reached a deep loss for a long time, the production capacity of this method only accounts for 20% of that of the calcium carbide method, so the impact is limited; In addition, calcium carbide has not obviously driven PVC at the cost end when the profits of chlor alkali integration are acceptable. Because calcium carbide cannot be stored, it is greatly disturbed by demand. In the second half of the year, the main downstream PVC continued to operate at a low level, which made it difficult to release demand, thus forcing calcium carbide plants to reduce profits and prices, or even reduce production, to achieve the rebalancing of supply and demand.
From the perspective of carbide production capacity pattern, after capacity clearing, the production capacity has increased slightly in recent two years, and the annual production capacity growth in recent five years is -0.88%. According to the production plan of new units in 2023, it is estimated that the new capacity will be about 1.49 million tons in 2023, mainly in Inner Mongolia, Shaanxi and Xinjiang. However, under the medium and long-term carbon neutral strategy in 2021, the production capacity of the two high tech industries is strictly put into operation, and it is expected that there will be a discount from the production of calcium carbide under the loose pattern in 2022. Therefore, we estimate that the carbide production capacity will be 41.15 million tons in 2023, with an annual growth rate of 2%.
Because calcium carbide is difficult to store, the calcium carbide industry is sensitive to downstream demand. At present, with the production capacity of BDO and vinyl acetate being put into operation, the demand for PVC has dropped from 85% in 2021 to 81%. Among the new capacity of PVC in 2023, only Jintai chlor alkali is produced by calcium carbide method, with a capacity of 600000 tons, which translates into 840000 tons of calcium carbide demand. In 2023, the new capacity of PVC will be limited, and given that the industry has faced a large area of losses in 22 years, it is possible to clear some of the existing capacity: PVC enterprises with an estimated annual capacity of less than 200000 tons and a device of external calcium carbide method are at greater risk, and the preliminary statistics involve a capacity of more than 1 million tons.
Previously, it was estimated that the rapid expansion of BDO in the next five years would boost the demand for calcium carbide, but from 2022, due to the decline in profits, BDO production was less than expected. As of 2022, the total capacity of BDO will be 2.85 million tons. According to the 2023 capacity release plan, the new capacity will be about 1.538 million tons. If the production is not expected, the demand for calcium carbide will be about 1.78 million tons. Therefore, it is preliminarily estimated that the total new capacity of PVC and BDO in 2023 will bring 2.5 million tons of new calcium carbide demand. From the perspective of downstream storage capacity, PVC is subject to loss and high storage pressure, and the current operating rate of carbide method is 65~68%; It is estimated that the impact of high inventory pressure and profit pressure may continue to the second quarter of 2023. If PVC starts at that time and remains low, the loss of PVC production in this part is expected to be 3.12 million tons, equivalent to 4.37 million tons of calcium carbide demand. Therefore, based on the calculation of the new capacity of calcium carbide, the potential output loss of PVC and the new capacity of calcium carbide downstream, there will be nearly 3 million tons of excess output of calcium carbide compared with 2022. If the capacity of PVC is cleared, the situation of loose supply and demand of calcium carbide will be exacerbated.
(2) Caustic soda: integrated support becomes weak
In 2022, the terminal real estate industry of PVC domestic demand will be in a downward cycle; In terms of external demand, due to the aggressive interest rate increase overseas and the impact of American goods supply on Asia, the overall demand for PVC has slumped, industrial inventories have been accumulating, and profits have been significantly compressed. However, due to the high profits of caustic soda end and the profitability of chlor alkali, PVC did not significantly reduce the burden. For a period of time, the industry has formed a situation of "supporting chlorine with alkali".
The profits of caustic soda in 2022 will be good as a whole. On the one hand, the main downstream alumina production of caustic soda will be concentrated, and the alumina production will exceed 12 million tons in 2022; As of October, the cumulative output of alumina was 68.179 million tons, an increase of 3.3 million tons over the same period of 2021. On the other hand, the export remained high. As of October, the cumulative export of caustic soda was 2.5153 million tons, an increase of 1.325 million tons over the same period of 2021.
Looking forward to 2023, the growth rate of alumina production is expected to slow down, the export is expected to be difficult to maintain this year's high level against the backdrop of the fall in overseas energy prices, the return of chlor alkali plants and the global recession. From the perspective of production planning, the newly increased capacity of caustic soda is about 2.75 million tons. Therefore, the supply and demand of caustic soda in 2023 will be more relaxed than that in 2022, or the profits of caustic soda will become weaker, which will put pressure on the profits of chlor alkali integration.
3、 Analysis of PVC supply and demand in 2023
(1) On the supply side: the incremental capacity is limited, and some of the stock capacity faces the risk of liquidation
Looking back at the PVC production capacity pattern in the past five years, the compound growth rate of China's PVC production capacity will be 2.19% from 2018 to 2022. In terms of stages, the performance of each year has a certain differentiation. In 2018, affected by the improvement of PVC profits, 2.31 million tons of PVC were added in the year, and the industrial capacity growth rate reached 10.41%; In 2019, the new production will be concentrated in chlor alkali integrated enterprises, and the concentration of enterprise capacity will be further improved; From 2020 to 2021, the market will again usher in an explosive period of production capacity. With the expansion trend of global and China's major refineries, ethylene based PVC production capacity will increase significantly in 2020, such as Qingdao Bay, Yantai Wanhua, Zhejiang Jiahua Energy and Shanghai chlor alkali. From the perspective of 2022, the expected production of the industry itself is still obvious. However, due to the pressure of the external economic environment and the profits of the PVC industry, the industry's prosperity has declined, and the realization of the new capacity has shown a significant expectation difference, and the production of some devices has been delayed. By 2022, the PVC production capacity will be 27.31 million tons.
The planned new capacity in 2023 is limited. According to the preliminary statistics, there are three sets of devices: Shaanxi Jintai 600000 t/a, Wanhua Chemical 400000 t/a and Zhenyang Development 300000 t/a, totaling 1.3 million tons, and the calculated capacity growth rate is 4.76%. However, since the total capacity of 800,000 tons of Guangxi Huayi and Shandong Xinfa will be put into production from November to December 2022, the actual supply pressure should be in 2023. Based on the current PVC fundamentals and future demand, we believe that the PVC industry will have overcapacity in 2023.
From the perspective of industry rebalancing or profit restoration. First of all, we are not optimistic about whether the profits can be rapidly improved in 2023. It takes time for policy transmission to deliver to the actual terminal demand, while the downstream orders have not improved significantly so far; It is difficult for demand to provide sustained and strong upward support. In spite of the recent de transformation of the social base, the factory base is at an absolute high level in the same period, especially during the Spring Festival, because it is expected that the medium-term pressure on PVC will remain. If the industry profit is still relatively low in 2023, it can not be ruled out that the industry will have a "survival by survival" capacity clearance situation, which will pose a greater risk to some enterprises with poor economy, small capacity and small capital volume. In the same way, if the demand improvement drives the price center to move up continuously, with the upward repair of industry profits, the enthusiasm of PVC upstream construction may be boosted. At that time, with the addition of new capacity, the supply elasticity will be larger, and the output will recover more quickly.
(2) Demand side: real estate is still the main driver
From the perspective of PVC consumption structure, the consumption of pipe materials accounts for 30%. In recent years, with the change of market demand and the influence of substitution, the demand for profile doors and windows has weakened to about 21%. The demand for new home decoration flooring, wallpaper, foam products and other products has increased, accounting for 12%. Film packaging and wire and cable packaging are 10% and 8% respectively.
The proportion of real estate products such as pipes, profiles and floors accounts for more than 60%. The strength of the real estate market will greatly affect the demand for PVC. From the use experience of different products in different stages of the real estate, it can be seen that the pipes are mainly used for the laying of drainage and exhaust pipes at the commencement stage and the construction stage, the profile window frames are mainly used for the completion period, and some PVC flooring products and wallpapers are used for the completion period or the decoration stage after delivery.
Looking back, the real estate market in 2022 is bleak enough. Since 21 years ago, the "three red lines" and the "centralized management of bank real estate credit" have led to the net outflow of industry financing cash flow, frequent thunderstorms in real estate companies, serious lack of residents' confidence in buying houses, and rapid decline in both supply and demand sides of the industry. In 2022, the sales area of commercial housing in the whole year will remain low and "free", reaching 1212.5 million square meters by November, down 23.3% year on year. Under the dual pressure of sluggish sales and difficulties in collecting money and tightening credit, the financial chain of real estate enterprises became tense, which was reflected to some extent in the process of construction, completion, land acquisition and new construction. The overall weakening of the real estate chain on a year-on-year basis suppressed the demand for PVC from the end source. The commencement of PVC downstream from the Spring Festival was basically lower than that of the same period last year, and it only flipped periodically during the "Golden Nine Silver Ten" period, resulting in sluggish downstream demand throughout the year. By the middle of December, the orders of downstream enterprises were significantly lower than that of the same period of 21 years, hindering the release of stock and speculative demand. It is estimated that the total domestic PVC downstream demand in 2022 will be around 19.68 million tons, down 4.65% year on year.
Looking forward to 2023, the real estate industry should remain relatively optimistic but should not be too blind. In 2022, real estate policies will occur frequently. From the demand side, from the meeting of the Political Bureau of the CPC Central Committee in July to the 16th Article of the People's Bank of China in November, the implementation and implementation of the policy of ensuring the delivery of buildings will be repeatedly mentioned and continuously specified, and there is still room for further development. The local government implemented the policy according to the city, reduced the cost of housing purchase by lowering the down payment ratio, relaxing the purchase restriction threshold, raising the ceiling of provident fund loans, individual income tax refund, etc., and strengthened residents' confidence in housing purchase. From the supply side: financing "three arrows", which promote real estate financing through credit, bonds and equity. Although the policies on both sides of supply and demand have been put into force in succession, and the real estate policy space is still large in 23 years, the actual real estate repair is still long, and transmission takes time. From the perspective of path, it is necessary to drive the real estate demand after the residents' confidence is rebuilt. After the demand side improves, the supply side policy is superimposed to support the increase of real estate enterprises' willingness to invest, which starts to increase the transmission of land acquisition disease to the recovery of new construction and construction. Therefore, we believe that the real estate demand stimulus for PVC in 2023 will be better than that in 2022 under the tone of positive release of the real estate policy base. If the policy is implemented smoothly, with the possibility of getting better month on month with land acquisition and new construction in the second half of the year, it is expected that the demand for PVC will show a trend of weak before strong. The main risk lies in the degree of policy implementation; The demand side recovery was less than expected, and the specific potential factors were: long-term income pressure of residents, the leverage ratio of residents that is difficult to further improve, and the weakening of speculative demand of "buying up but not buying down".
4、 Import and export: overseas demand is pessimistic, and net exports are expected to weaken
(1) PVC powder
According to the PVC import and export data in the past five years from 2018 to 2022, thanks to the release of overseas real estate demand and the increase of agricultural pipeline demand in emerging countries such as India and Southeast Asia, China has achieved the transformation from a net importer of PVC to a net exporter.
As of October, the net export of PVC powder in 2022 has reached 1.49 million tons, which is still higher than that in the same period of 2021 and far higher than the total net export in any previous year. We believe that the main reason is that the soaring overseas energy prices have led to the production reduction of chlor alkali enterprises. In China, the policy vacuum period after the expiry of India's anti-dumping duty coincides with the sharp drop in domestic powder prices. Manufacturers and traders actively seek export opportunities. However, from the monthly detailed data, the net export volume of PVC powder has been in a downward trend from May to October, and the net export volume in October has been lower than the level in the same period of 21 years. In this regard, we believe that in addition to the increasing wait-and-see sentiment in overseas markets, the pressure of high inventory in North America has led to the low price of American goods impacting the Asian market to seize the share.
Looking forward to 2023, it is expected that the net export of PVC will decline year-on-year from 2020 to 2021. On the one hand, overseas economies will further increase interest rates to curb high inflation, and the inhibition of high interest rates on overseas economies will be further reflected. The growth of overseas economies is expected to further slow down, and may be more reflected in the reduction of commercial demand. On the other hand, with the gradual downward shift of the energy price center, the overseas supply pressure may decrease in 2023, and the inventory in North America is too high and the demand is insufficient, which may cause continuous low-cost supply competition.
(2) Floor covering products
As China's PVC flooring has the advantage of large volume and low cost, the export of PVC flooring products will grow significantly after 2020; From the perspective of export flow, the export of floor covering products is mainly in Europe and the United States, with the United States accounting for 5-60% of the total exports and Europe accounting for 1-2%. By August 22, China's monthly export of floor covering products had fallen back to the level of 19 years, with a significant decline.
Looking forward to 2023, it is estimated that the demand for floor coverings in the United States will decline in 2023 from the weakening of the U.S. real estate sales data in 2022. According to the proportion of floor imports from the United States, Vietnam gradually divided its share of China's exports, which increased from around 0 in 2018 to 19.26% in June 2022, and the corresponding share of China's floors decreased by 61% from 87%. It is expected that Vietnam's exports will further reduce the already sluggish export demand for floor coverings, and the export volume of floor coverings is expected to further decline year-on-year in 2023.
2023PVC Strategy Suggestions
From the perspective of PVC supply and demand, the supply side increase is limited, but in view of the industry profit pressure, the capacity utilization rate may decline. However, if the profit is restored, the PVC supply side has a large elastic space. On the demand side, under the pressure of overseas recession, foreign demand is expected to decline, but domestic real estate policies continue to release in order to make up for export shrinkage through domestic demand. However, according to the previous judgment on the path of real estate repair, the speed of real estate demand boosting may be slow in the first place and fast in the second. Combined with the current accumulated high level of PVC factory warehouse+social warehouse, the post holiday inventory will only be higher. If the post holiday demand is less than expected, the PVC storage pressure may fall back.
