Chemical supply continues to increase and the structure changed

Our global Chlor-alkali and vinyls team have recently taken a close look at developments in the Mainland China PVC market, in the post-pandemic era. In 2023-27, PVC capacity in mainland China is expected to continue increasing. Although new PVC projects and capacity expansions are still strictly limited by the government, some new capacities, including some carbide-based PVC capacities that use non-mercury catalysts and ethylene-based PVC capacities, still received approval from the government. With PVC capacity increasing, it would be difficult to see the average operating rate rise above 80%.

Over the next few years, the new expansions are all integrated carbide-based PVC or ethylene-based PVC. The proportion of ethylene-based PVC is greater than that of carbide-based PVC, so the proportion of ethylene-based PVC in the total capacity is gradually increasing. By 2027, the proportion of ethylene-based PVC will reach 27%, an increase of 10% compared with 2018.

Demand recovered slower than expected

Regarding PVC downstream demand, pipe and fittings, tube and profile, wire and cable, and flooring are the main consumption sectors, covering over 70% of the total demand. These PVC demand sectors are closely tied to the real estate industry. Therefore, the real estate situation will remain the key demand section for polyvinyl chloride applications in the post-pandemic era. The new government announced some real estate recovery and economic development policies and reaffirmed the real estate industry as a pillar industry in the coming years.

The government’s stimulus policies for real estate and economic development will not be immediately transmitted to PVC demand. It is expected that the growth of PVC demand will gradually emerge in the second half of 2023 and 2024. In the long run, the government’s stimulus policies will play a key role in the growth of PVC demand. Overall, downstream demand still needs more time to recover and the overall PVC market in mainland China will still face some pressure from oversupply in the coming years. PVC producers will increase their export volumes to ease the pressure in the domestic market, and the export market will remain a key factor to balance the overall supply and demand.

Summary

• Mainland China will become the most important market in global PVC trade in the next 3-5 years. GDP growth, real estate recovery, and government policies are the major factors to monitor.
• Demand recovery is slower than expected. PVC demand pickup is expected to begin in the second half of 2023 or 2024. On the other hand, the extra supply is expected to loosen the market supply and demand.
• Integrated carbide-based and ethylene-based PVC producing companies still hold better returns. Non-integrated carbide-based PVC producers are expected to be the first to be impacted by market headwinds, and some may even be forced to close.
• Mainland China export is a crucial supply source in balancing global PVC trade and its domestic market supply/demand dynamics are expected to remain a key factor for the next few years in driving market prices and margins for the vinyls industry, particularly within the Asia Pacific region.

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