In 2005, the domestic chemical market experienced significant fluctuations. With rising upstream energy costs and limited demand from downstream users, most chemical products lost their appeal, leading to a sharp decline in market conditions. As we entered 2006, industry players were eager to understand whether the downward trend would continue, or if the market would experience a temporary rebound or even a shift in direction. To provide clarity, this edition has selected several key chemical industries and products, offering an analysis and forecast of production and demand trends for 2006. Our goal is to help chemical companies better navigate the market and make informed decisions for the year ahead. We also welcome insights from industry experts who are interested in sharing their perspectives on the future of the chemical sector.
PVC production in China saw a substantial increase in 2005, but this was accompanied by a steady drop in prices, which eventually turned into a sharp decline. Industry insiders remain concerned about the outlook for 2006. By November 2005, PVC output reached 5.878 million tons, up 27.4% year-on-year. It is estimated that annual production will reach nearly 6.5 million tons, marking a 29% rise. This surge in supply led to oversupply, pushing prices down significantly. While prices remained relatively stable in the first four months, they fell sharply in May, reaching the lowest point of the year. In South China, the price of calcium carbide-based PVC dropped to between 6,000 and 6,300 yuan per ton, while ethylene-based PVC was priced between 6,200 and 6,500 yuan. Prices showed some recovery in June, followed by minor declines in July and August, but the market remained weak overall, with prices continuing to fall. By December, prices in East and South China remained in a downward trend, with calcium carbide PVC ranging from 6,200 to 6,300 yuan, and ethylene PVC from 6,250 to 6,500 yuan.
Looking ahead to 2006, the PVC market is expected to face continued challenges. Several key factors will shape the market: first, the rapid expansion of production capacity. Domestic PVC capacity reached 9.72 million tons at the end of 2005, and is projected to grow by 3.75 million tons in 2006, reaching 13.47 million tons—a 38.6% increase. This surge in supply will intensify competition and further pressure prices. Second, the international oil market remains volatile, but overall prices are expected to stay high, around $65 per barrel. This will put pressure on both the ethylene and calcium carbide processes. Third, macro-control policies, especially those affecting real estate, will continue to suppress demand from the construction sector, which is a major consumer of PVC. Additionally, environmental regulations and energy concerns will play a growing role in shaping the industry. Finally, import and export dynamics will also influence the market. Imports declined by 19% year-on-year through October 2005, while exports surged by 121%, exceeding 100,000 tons for the year. These trade flows could help ease domestic supply pressures.
On the demand side, downstream sectors such as pipes, profiles, and films saw growth in 2005, but this was far outpaced by the rapid expansion of PVC production. With macro-control measures still in effect, demand in 2006 is unlikely to keep up with supply, exacerbating the existing supply-demand imbalance. As a result, the PVC market is set for a period of adjustment, with prices likely to remain low. The coming year will be a critical one for the industry, marked by restructuring and realignment.
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