China's PVC market outlook for 2006 not optimistic

04-Jan-06

China's production capacity and output of polyvinyl chloride (PVC) increased sharply in 2005, resulting in a fall in market prices. By November 2005, China's PVC output reached 5.878 million tons, up 27.4% YOY. Market price of PVC that remained stable in Q1-2005, dropped sharply in May, then picked up slightly in June and then dropped again in July. By the end of December, the market price of PVC was seen dipping. As PVC prices in China dipped in 2005, outlook for China's PVC market in 2006 has not been forecast as positive, based on these factors: * Increase in PVC production capacity and output has led to a supply glut in the domestic market, with market prices dropping sharply. China's PVC production capacity reached 9.72 million tons by the end of 2005 and is expected to further increase to 13.47 million tons in 2006, up 38.6%. * Market pressure on PVC produced by ethylene method has increased, as crude oil prices are predicted to remain high in 2006. * The influence of macro control policies will remain in 2006. Under macro control measures, China's market demand for PVC has dwindled and the trend may continue into 2006. The National Development and Reform Commission will soon publish policies governing PVC production by calcium carbide and ethylene methods. By then, the price gap between the two methods may enlarge further. * Downstream demand for PVC lags behind the production capacity growth. Downstream sectors have maintained a 15% growth in production in the period, which fails to be in step with upstream growth.