Affected by the geopolitical situation in the Middle East and the power shortage in some northwest regions, ethylene based polyvinyl chloride and calcium carbide based PVC enterprises have successively experienced load reduction. From May to July, the operating load rate of the PVC powder industry remained at a low level, and there was a shortage of spot Pvc Suspension Resin SG3 and PVC SG8 in the market, resulting in price increases and a significant expansion of the premium compared to PVC SG5. With the gradual recovery of some low load enterprises and the temporary conversion of some enterprises, it is expected that the premium range of PVC SG3 and PVC SG8 may narrow in the future.
The production decreased significantly from May to July, and the premium of PVC SG3 and PVC resin SG8 expanded
Since the geopolitical impact on the Middle East began to manifest in March, the navigation volume in the Strait of Hormuz has decreased, putting pressure on some ethylene based PVC production enterprises to face raw material shortages and rising costs. Some ethylene based PVC powder plants have started to experience load reduction and shutdown, and the overall industry operating load rate has gradually decreased. In June, the industry operating load rate dropped to a low level in recent years; Although some ethylene based PVC resin production enterprises resumed their load in July due to the expected geopolitical easing in the Middle East, there were still many routine maintenance operations. In addition, the expected increase in electricity costs in some areas at the beginning of July led to a significant increase in the price of calcium carbide, which significantly increased the cost pressure on some enterprises that imported calcium carbide. Some calcium carbide based PVC powder plants also experienced load reduction. Therefore, although the industry resumed production in July, the improvement was still limited, and the monthly output remained relatively low compared to the same period last year.
Due to various reasons, production companies have reduced production significantly from May to July, and the reduced equipment includes PVC SG3 or PVC SG8 production lines, resulting in a decrease in the supply of PVC SG3 and PVC SG8 in the market. Although the overall domestic demand performance from May to July was relatively weak, with the continuous digestion of 3 and 8 types of spot goods in the market, some markets have experienced tight supply of certain grades, and prices have also risen sharply. Taking the Changzhou market as an example, since the geopolitical impact in the Middle East began to emerge in March, the price difference between PVC SG3 and PVC resin SG8 compared to PVC SG5 has gradually expanded from around 100 yuan/ton for most of the time to around 350 yuan/ton, with a premium space of about 250 yuan/ton.
The premium for PVC SG3 and PVC SG8 may converge in the future
With the decline in the price of calcium carbide in mid July, the integrated gross profit of chlor alkali and PVC powder for enterprises that extract calcium carbide has improved. The loss has gradually decreased from around 500 yuan/ton in early July to around 100 yuan/ton, and the cost pressure has significantly reduced compared to the previous period. The enthusiasm for starting production has increased compared to the previous period. In late July, some enterprises that operated at low loads in the early period began to gradually increase their load or plan to increase their load, and some Type 3 and Type 8 units have started to operate more.
In addition, as most production lines of manufacturing enterprises can switch between various models, given the current premium margins of PVC SG3 and PVC SG8, if enterprises produce Type 3 and Type 8 PVC powder, it will further alleviate cost pressures and expand sales revenue. Therefore, since mid-July, some manufacturing enterprises have taken the opportunity of previous maintenance and, after the equipment was restored, began to switch to producing PVC resin SG3 and SG8. Some other enterprises, considering the persistently high inventory in the current industry and the fact that most spot goods in the market are PVC resin powder SG5, have also begun to consider adjusting some production lines to switch to other models of products, as the PVC SG5 market may face significant pressure in terms of inventory and sales in the subsequent third and fourth quarters.
Overall, it is expected that the production of PVC powder SG3 and PVC resin SG8 will increase in the future. As new converted enterprises gradually introduce their spot products to the market, the premium ability of Type 3 and Type 8 is expected to weaken, and the price difference compared to PVC SG5 may narrow. However, it should be noted that if the geopolitical impact in the Middle East expands or persists for a long time, high crude oil prices may once again put cost pressure on some ethylene-based PVC production enterprises. Since ethylene-based PVC accounts for about 30% of the production of PVC SG3 and PVC SG8, if there is a widespread reduction in production capacity of ethylene-based PVC powder plants again, the premium ability of PVC resin powder SG3 and PVC SG8 may increase.