I. Analysis of the supply of PVC products

1. Capacity distribution

PVC products, namely polyvinyl chloride products, the main upstream for the PVC industry. From the geographical distribution of production capacity, PVC production capacity is mainly concentrated in northwest and North China, among which, PVC production capacity in northwest China accounts for more than 50% of the total national production capacity. The competition in the PVC domestic industry is fierce, although there are only nearly 100 domestic PVC production enterprises, but the industry concentration is low, in 2020, China's PVC industry CR10 is only 34%.

2. Variation of output

After the economic crisis in 2008, driven by the 4 trillion yuan economic stimulus policy, the domestic PVC production capacity showed a recovery growth and continued to expand, with the annual output reaching a high value of 24.77 million tons in 2013.

However, from 2013 to 2015, China's PVC industry has obvious excess capacity, and the industry as a whole is in a state of loss, with low production. Production capacity began to show negative growth in 2014, and PVC production reached a low point of 22.22 million tons in 2015. The overall production of the enterprise was not high.

Under the background of the overcapacity reduction policy, after market-oriented adjustment, backward production capacity of PVC industry has been gradually eliminated, and effective production capacity is in a trend of gradual decline, with a cumulative decline of about 2.5 million tons in three years. At the end of 2015, the situation that the supply of PVC industry was seriously greater than the demand was alleviated, and the supply and demand pattern returned to a relatively balanced state. In 2016, the development situation of PVC industry improved, the operation rate rose steadily, the capacity utilization rate increased, and the new production capacity was accelerated again, and the domestic PVC production capacity maintained a steady growth trend.

By the end of 2019, China's PVC production exceeded 20 million tons, and the country's production capacity exceeded 27 million tons in 2020. Total capacity increased by 3 million tonnes between 2017 and 2020.

According to the "Research Report on the Development Status and Future Prospects of China PVC Products Industry (2022-2029)" released by Guanyan Report Network, in 2021, although production units maintain a high load operation situation, China's new PVC production capacity is small, only increased by 1.83% year-on-year. Only 100,000 tons of Shanxi Ruiheng plant and 60,000 tons of Gansu Jinchuan plant have been put into production, and 160,000 tons of new capacity have been released, and none of the new capacity has reached full capacity. In 2021, new production capacity will mainly be released in the second half of the year, and from the second half of the year, the maintenance plan of production enterprises will be gradually reduced, and the PVC supply is expected to increase. The tight market supply is expected to be eased, but the probability of supply and demand imbalance is not large.

However, judging from the production of new capacity in recent years, the production release schedule of PVC industry is increasingly affected by environmental protection and other policies, and the approval process is increasingly strict, so the rapid growth of production capacity is expected to be limited.

3. Upstream production

By the end of 2021, the total production capacity of PVC in China is about 26.25 million tons, among which the production capacity of PVC by calcium carbide process is 20.6 million tons, accounting for 78.7% of the total production capacity. Therefore, calcium carbide price directly affects the price of PVC. China's calcium carbide production capacity decreased from 48 million tons in 2015 to 41 million tons in 2020. From the output of calcium carbide, the output of calcium carbide was relatively stable from 2015 to 2019, basically maintained at about 26 million tons. With the old domestic production capacity gradually being cleared, the utilization rate of Chinese calcium carbide production capacity has been increasing continuously. In 2020, the utilization rate of calcium carbide production capacity has reached 67%.

In 2021, affected by factors such as rising coal price and double control of energy consumption, the operation of calcium carbide manufacturers was greatly affected, and the calcium carbide price soared nearly 2 times, resulting in increasing production cost of PVC, so that some PVC manufacturers that purchased calcium carbide even suffered losses. At the same time, calcium carbide supply is insufficient, some PVC production enterprises are forced to start work to reduce the negative, PVC supply continues to shrink. Looking to the future, in 2022, China will still tightly grasp the dual control of energy consumption, calcium carbide price should still have strong support, PVC will also face high cost support.

Therefore, although our PVC is still dominated by the calcium carbide method, the proportion of ethylene production capacity is gradually increasing. Ethylene is one of the most productive chemical products in the world, and it is also the core of the petrochemical industry, which is one of the important symbols to measure the development level of a country's petrochemical industry. Polyvinyl chloride is an important downstream of ethylene, accounting for 5% of the total demand for ethylene.

Second, PVC products demand analysis

PVC is widely used, mainly divided into hard products and soft products two categories, many products, in the daily consumption of various fields have been applied. Among them, pipe and pipe fittings are the field of PVC CONSUMPTION is big in our country, accounting for about 36% of the total consumption of PVC. Profiles, doors and Windows are the two largest consumer areas, accounting for about 14% of the total consumption of PVC, mainly used for the production of doors and Windows and energy-saving materials. In addition, PVC is also widely used in flooring, wallboard and other boards, films, hard and other sheets, soft products and other fields.

Therefore, PVC products are mainly used as building materials, real estate, building decoration and other fields are the downstream of PVC products, and the building materials field demand led by pipe fittings and profiles occupies a major position.

In recent years, domestic demand for PVC pipe fittings has been growing steadily, mainly due to the increase of demand for real estate and urban infrastructure construction. The demand for new PVC flooring, wallpaper, wood plastic and other home decoration is growing rapidly, the export of paving materials is improving, and the overall demand for building materials is increasing steadily. By tracking the trend of housing newly started area year-on-year and PVC futures price, it can be found that there is a certain correlation between the two. PVC products have a strong positive correlation with the real estate industry.

In addition, the demand for PVC products shows a certain seasonal, the demand season mainly appears in November to March next year, after April, the market ushered in peak season. But with the downturn in the industry, real estate investment growth declined, the PVC market off-season is not light, peak season is not prosperous characteristics more obvious. Fortunately, the new PVC production capacity increased in 2017-2018, the output was released, the demand growth was also significantly accelerated, and the apparent consumption picked up steadily.

It is expected that in 2022, the apparent consumption of PVC products will increase steadily as the impact of the epidemic fades, the domestic macroeconomic environment improves, downstream demand gradually recovers and apparent consumption of PVC products increases steadily. In addition, due to the impact of the epidemic, the conflict between Russia and Ukraine and other factors, the prices of crude oil and other commodities have risen sharply, so the implementation of the "two-carbon" policy may be temporarily eased.

However, in the long run, the "dual carbon" target and a series of top-level policy designs such as the dual control of energy consumption derived from it will have a profound impact on the basic chemical industry in the near future and for a long time to come. In the future, the "two-carbon" target will increase the operating costs, technology substitution risks and entry barriers of enterprises in each sub-field of basic chemical industry, so as to accelerate the clearance of low-end capacity in each sub-field and optimize the industry pattern.