Supply and demand have improved, and PVC is stabilizing after fluctuations.

The domestic PVC futures 2505 contract experienced a significant rebound on March 24 after a month of decline, with the price rising sharply by 2.67% to 2160 yuan/ton. In the short term, there is certain resistance to further significant increases in the PVC futures 2505 contract due to the dual pressure from the 40-day and 60-day moving averages. Currently, the cost of PVC production continues to rise, further widening the loss margin for PVC production profits, leading to a slight decrease in both output and inventory. At the same time, there has been a certain degree of improvement in downstream demand for PVC. Considering these factors, it is expected that the PVC futures 2505 contract may enter a phase of oscillation and bottoming out.

Increased costs have led to a larger loss in gross profit from production.

It is well known that in China, PVC production mainly adopts two processes, namely the calcium carbide method and the ethylene method. Since late March, the costs of producing PVC using both of these processes have shown an upward trend.

Due to the tight supply of carbide in China, there are still signs of price increases in some regions. Additionally, the price of liquid chlorine has risen, leading to a slight week-on-week increase in the national average cost of carbide-based PVC. According to statistics, as of the week ending March 21, the average cost for carbide-based PVC production enterprises nationwide was 5,500 yuan/ton, an increase of 86 yuan/ton compared to the previous week.

In terms of PVC produced by the ethylene method, despite the continuous decline in the dollar price of ethylene, the price of liquid chlorine has risen significantly. Therefore, on the whole, the average cost of ethylene-based PVC in the country still maintains an upward trend week-on-week. According to statistics, as of the week ending March 21, the average cost of PVC production from ethylene in the country was 5,780 yuan/ton, which is a slight increase of 20 yuan/ton compared to the previous week. Under the influence of rising costs from both the upstream calcium carbide method and the ethylene method, the gross profit loss for PVC production has worsened. Statistics show that as of the week ending March 21, the average gross profit loss for PVC production from calcium carbide in the country was 753 yuan/ton, expanding by 110 yuan/ton week-on-week; the average gross profit loss for PVC production from ethylene was 668 yuan/ton, which expanded by 82 yuan/ton week-on-week.

Slight decline in output, inventory decreases again.

As production costs increase, the losses in PVC margins have widened, leading to a decline in the production enthusiasm of enterprises. Recently, the operating rates of facilities such as Guangxi Huayi, Tianjin Bohua, and Shanxi Ruiheng have decreased, resulting in a week-on-week decline in domestic PVC production. As of the week ending March 21, the domestic PVC production capacity utilization rate was 79.83%, a slight decrease of 0.67 percentage points week-on-week and a minor decline of 0.41 percentage points year-on-year. Among them, the capacity utilization rate for the calcium carbide method was 82.62%, a slight decrease of 0.12 percentage points week-on-week, while it saw a small year-on-year increase of 1.41 percentage points; the capacity utilization rate for the ethylene method was 72.51%, a small week-on-week decline of 2.11 percentage points and a significant year-on-year decrease of 4.88 percentage points. Affected by this, the national PVC production during the same period was 466,400 tons, a week-on-week decrease of 0.83% and a year-on-year increase of 2.28%.

Due to a slight decline in production, domestic PVC social inventory has also seen a year-on-year and month-on-month decrease. According to statistics, as of the week ending March 21, the domestic PVC social inventory (from 41 sampled companies) was 833,800 tons, a slight decrease of 2.89% from the previous week and a year-on-year decrease of 4.32%. Among these, the East China region accounted for 770,600 tons, with a slight week-on-week decrease of 3.25% and a year-on-year decrease of 4.06%; the South China region had 63,200 tons, with a slight week-on-week increase of 1.72%, but a significant year-on-year decline of 7.29%.

Support from multiple factors, improvement in downstream demand.

Since late March, the operating load of domestic PVC downstream product enterprises has remained sluggish. Although the overall operating rate has shown some recovery, the pace of recovery has been relatively slow, and it is still at a low level compared to the same period last year.

Among them, the operating rate of hard products remains low, while the operating rate of soft products is relatively good. Downstream PVC procurement is mainly based on rigid demand, and forward orders perform poorly. According to statistics, as of the week of March 21, the average operating rate of domestic PVC downstream industries has recovered to 47.17%, a slight increase of 0.72 percentage points week-on-week. Among them, the operating rate of pipe profiles (hard products) is between 40% and 50%, while the operating rate of films (soft products) is around 70%.

Currently, terminal real estate demand has shown slight improvement. According to statistics, from January to February, the national sales area of newly built commercial housing reached 107.46 million square meters, a year-on-year decrease of 5.1%, which is a narrowing of 7.8 percentage points compared to the full year of 2024; among them, the sales area of residential properties decreased by 3.4%, a narrowing of 10.7 percentage points. This indicates that future PVC demand expectations are likely to improve.

In summary, as the upstream production costs of PVC increase, the gross profit losses of PVC companies have widened, leading to a decline in supply expectations and a slight decrease in social inventory. Coupled with a narrowing year-on-year decline in real estate sales, terminal demand has shown some improvement. This situation has boosted future demand expectations for PVC, suggesting that it is likely to improve. With a generally bullish fundamental support, it is expected that the domestic PVC futures contract 2505 will maintain a fluctuating and stabilizing trend in the future. (Author's futures investment consulting practitioner certificate number Z0001617)