PVC:Upward Pressure Or Will Enter The Market

- Aug 31, 2019-

Abstract: in September, downstream of the PVC profile factory starts back up, November 10, PVC factory and entered the stage of fall before winter maintenance period, coupled with the crude oil futures prices geopolitical influence continue higher, at the end of October the environmental policy of the reorganization of the Inner Mongolia limestone production fermentation, PVC futures prices rising from early August to mid August.

In recent days due to the impact of the policy of environmental protection production limit speculation ended, long positions have profit taking, coupled with the relatively weak demand end, PVC futures price correction.


In the medium and long term, the weak demand puts some pressure on the high price. At present, the inventory has been reduced to the same level last year, but the absolute price is still at the high level in recent years.

Later supply and demand improvement will limit PVC short - term space below.

However, the height of the continued rebound depends on the speed of inventory destocking, if the inventory can turn into a year-on-year decline, the future price will continue to have an impact, otherwise, the future continued upward space is limited.

Recommended short - term short positions on the short.


1. Operation strategy


Domestic PVC spot market in a narrow range of oscillations, prices back slightly.

By Inner Mongolia yi li, lejin chemical, yinglite, ningbo formosu and tangshan sanyou device overhaul, the PVC industry started a narrow range of low.

Production enterprises inventory is low, large manufacturers have many pre-orders.

Although the recent shipment situation is general, but there is no sales pressure.

Traders basic price stabilization operation, the actual transaction price has been loose.

As futures prices fall, market participants' confidence is hit, and bear sentiment is strong.

Operation to the band operation to short the main height.


Strategy: the main 2001 in 6470 tried to short.

Stop loss around 6530.


2. Market analysis


After experiencing the rising market from the end of march to the beginning of may in 2019, the main force of PVC appeared the callback market in recent days, and the price difference between futures and futures fluctuated greatly.


From the perspective of PVC output, the overall output of PVC in 2019 is at a higher level than previous years, continuing the high yield status since the end of 2018, which forms a certain pressure on the price of PVC futures.


Recently caustic soda prices again upward, last week a little decline, but prices remain high, which makes the chlor-alkali industry profits better.

This factor will make PVC production temporarily difficult to decline.


Compared with 2018, the overall social inventory level of PVC industry remains relatively high this year. After the destocking in the previous stage, the inventory is already low, but still high compared with 2018. It is expected that the inventory reduction in the industry will continue for some time.


From the perspective of upstream and downstream utilization rate, the upstream utilization rate of PVC has experienced an increase in the beginning of April, but it is still higher than the same period of 2018.

The utilization rate of PVC downstream industry has been on the rise since march, which will play a supporting role to the futures price.


In August, the downstream construction basically maintained at the normal level, large and medium-sized product enterprises started to maintain high, some small and medium-sized product enterprises still have room to improve, pipe materials, profile enterprises have recovered to about 5-70%, the downstream market to maintain just need to get goods.

While September is traditionally the peak month for demand, downstream demand has returned to positive levels, leaving little room for improvement.


PVC consumer goods are divided into two major parts: soft products and hard products, of which pipe/pipe fittings and profile/doors and Windows are the two areas with the largest amount of hard products.

Pipes/fittings and profiles/doors and Windows are mainly used in the construction field. The development of the domestic real estate industry plays a decisive role in the demand for PVC.

Under the policy of "stabilizing land prices, housing prices and expectations", the real estate market has seen positive changes, with most major indicators showing a steady trend.

In the second quarter, investment in real estate development was stable on the whole, growing by 10.9% year on year, down 0.5 percentage point from January to February.

The area of newly started real estate projects increased by 15.1%, or 2.4 percentage points.


From the demand side, the overall growth rate of real estate slowed down in 2018, with the completion of real estate development in the first four months at a lower level than in previous years.

New housing areas, commercial housing sales are less than the same period last year.

The weak demand side will put some pressure on the upward price of PVC futures.

3. Trading philosophy


Weak demand has put some pressure on the high price of PVC. At present, the inventory has been reduced to the same level last year, but the absolute price is still high in recent years.

Later supply and demand improvement will limit PVC short - term space below.

However, the height of the continued rebound depends on the speed of inventory destocking, if the inventory can turn into a year-on-year decline, the future price will continue to have an impact, otherwise, the future continued upward space is limited.

The influence of environmental protection policy on limestone price will still be an uncertain factor of PVC futures price. It is suggested that short-term investors reduce their positions and take an opportunity to sell against the high.


4. Risk tips


Potential risks are mainly reflected in the following aspects:


1) the impact of environmental policies on upstream raw material prices


Starting from the end of August, the environmental protection inspection of PVC industry began to tighten, mainly because the celebration of the 70th anniversary of the founding of the People's Republic of China in Beijing will be of great significance, and attention will be paid to whether the 70th anniversary will issue a ban on the transport of dangerous goods.

At present, China's economy is under the double pressure of downward pressure of endogenous growth rate and escalating external trade friction.

Therefore, the state attaches great importance to environmental protection inspection is also frequent.


Since the end of August, the strict environmental protection policy will continue to be upgraded, following intensive inspections in shandong, hubei, jiangsu and guangdong provinces.

From August 11 to 31, two environmental protection groups were stationed, one in shandong and the other in xinjiang for inspection.

The environmental protection event made the market more worried about the production capacity of calcium carbide upstream of PVC, and the cost of PVC was expected to rise, which directly led to the price rise in September.


2) changes in PVC inventory affect spot prices


The change of PVC social inventory will have a great impact on PVC spot price. If the industry inventory continues to decline, it will be a good boost to the futures price.

If the industry inventory decline pressure, unable to reduce to a lower level, then the impact on futures prices will be negative.


3) china-us trade relations have further deteriorated


On August 23rd America announced that it would raise tariffs on some $550 billion of Chinese exports to America.

From 25% to 30%, and from 10% to 15%.

Such actions will undoubtedly push the trade war to a worse outcome.

From the perspective of the United States, raising import tariffs has not fundamentally reversed the trade surplus between China and the United States.

In other words, the 25 percent and 10 percent tariff increases are affordable for business people in both countries.

America cannot afford to find such a big "department store supplier" any time soon.

Raising the tariff rate may be said to be a "stress test" by the us, which also wants to collect more wool from the tariff revenue.

In this case, then, the impact of a trade war would be greater than previously estimated, since a 5% tariff increase would mean a 5% or so reduction in overall profits.

Whether or not Chinese and American traders can afford the 5%, this is not a good thing for the import and export trade of PVC enterprises.