In 2025, the PVC market consistently faced the dual pressures of high supply and high operating rates, with futures prices hitting a record low since its listing. Although the National Development and Reform Commission's introduction of cost-based standards for identifying disorderly price competition signaled a clear policy support, and undervaluation factors drove a slight rebound in futures prices, the weak market trend remained unchanged. In the short term, the combination of high operating rates, high inventory, and weak demand has not eased, limiting the potential for price rebounds. In the medium term, key attention needs to be paid to the pace of capacity reduction, the effectiveness of policy implementation, and changes in the competitive landscape of export markets; a rebalancing of supply and demand will take a considerable amount of time.

The contradiction between high operating rates and industry losses continued to intensify, marking the end of the supply-side capacity expansion cycle.

2025 became the "final year" for PVC industry capacity expansion, with domestic new capacity reaching 2.2 million tons, bringing the total capacity to over 29.93 million tons by the end of the year, a year-on-year increase of 7.35%. Ethylene-based capacity accounted for 28% of total capacity, and the industry's supply structure continued to optimize. It is estimated that China's cumulative PVC production from January to December 2025 will reach 24.5 million tons, a year-on-year increase of 4.52%, with ethylene-based production growing by as much as 13%. The concentrated release of new capacity further exacerbates the oversupply situation in the market. As the contradiction between high operating rates and continued losses intensifies, the global PVC capacity expansion process is nearing its end. In 2026, only Zhejiang Jiahe's 300,000-ton capacity is planned to be put into operation domestically, and overseas, only a 350,000-ton plant in the UAE is awaiting commissioning. The industry has officially entered a structural adjustment phase.

As of December 22, 2025, integrated chlor-alkali and calcium carbide-based PVC powder enterprises in Shandong Province were experiencing a gross profit loss of 445 yuan/ton, a slight narrowing of the loss compared to the previous period. On December 19, the overall operating rate of the PVC industry slightly decreased to 77.38%. However, constrained by the need for safe operation of enterprises' facilities in the fourth quarter and annual production targets, the room for further decline in the operating rate in the short term is limited. Overall, the gross profit margins of integrated caustic soda and PVC powder manufacturers improved somewhat in late December, but companies in Shandong province are likely to continue operating at a loss. As industry losses continue to widen, small and medium-sized high-cost production capacity has been forced to reduce its operating rate. A concentrated maintenance wave is expected in the first quarter of 2026, with some older plants in Xinjiang and Shandong that have been operating for over 20 years potentially exiting the market more quickly, gradually easing market supply pressure.

Inventory pressure has reached record highs for the same period in recent years. As of December 19, domestic PVC social inventory reached 1.0568 million tons, a significant year-on-year increase of 31%, with warehouse inventories in East and South China both at historical peaks. Due to the concentrated release of new production capacity in the fourth quarter, inventory has been accumulating since July, and even the traditional peak consumption season of "Golden September and Silver October" has failed to effectively reduce inventory. With the Spring Festival approaching, downstream enterprises are nearing the end of their stockpiling phase. Although the rate of inventory accumulation has slowed somewhat, the situation of high levels of both enterprise and social inventories remains unchanged. The inventory reduction cycle is expected to extend to the second quarter of 2026, which has become the core contradiction suppressing PVC prices.

Weak domestic demand makes exports the new source of market growth.

Weak domestic demand exhibits a combination of cyclical and seasonal characteristics. 60% of downstream PVC demand relies on the real estate sector. However, in the first 11 months of 2025, the national new residential construction area fell to 392 million square meters, a year-on-year decrease of 19.9%, and national real estate development investment fell by 15.9% year-on-year. The transaction area of commercial housing in 30 major and medium-sized cities remained at a low level in recent years. Affected by this, the operating rates of downstream pipe and profile enterprises fell to 37.6% and 35.13% respectively, both below 40%, and further shutdowns and holidays are expected before the Spring Festival, resulting in a lack of growth elasticity on the demand side. In the medium term, 2026, the opening year of the 15th Five-Year Plan, will see some support for PVC demand from the launch of major infrastructure projects. However, the real estate sector's adjustment has not yet bottomed out, coupled with limited demand growth in emerging fields, resulting in an estimated annual demand growth rate of only around 2%, insufficient to absorb the current market's excess capacity.

The export market is showing a differentiated trend. From January to October 2025, cumulative exports of PVC powder reached 3.23 million tons, a significant year-on-year increase of 49%. India's cancellation of anti-dumping duties and BIS certification policies has opened up vast opportunities for my country's PVC exports. However, in the short term, export support has weakened. In December, affected by factors such as rising shipping costs, export orders declined month-on-month, and the Indian market is now experiencing competition from multiple countries, continuously compressing export profit margins. In the medium to long term, the peak overseas demand season in 2026, coupled with stable demand in the Southeast Asian market, is expected to drive PVC exports to increase by about 15%. However, the risk of intensified trade competition against the backdrop of global overcapacity needs to be monitored, and the impact of exports on digesting domestic inventory remains limited.

Losses are forcing capacity reduction, and policy support is unlikely to be effective in the short term.

Currently, PVC prices are at historically low levels, and all processes in the industry are operating at a loss. Cost differentiation is further intensifying, with the comprehensive profit of chlor-alkali enterprises in Northwest China only reaching 250 yuan/ton, and enterprises in Shandong Province experiencing losses of up to 600 yuan/ton. The continued decline in caustic soda prices has completely eliminated the "alkali-for-chlorine" effect, significantly increasing the pressure on high-cost equipment to exit the market. On the policy front, in addition to the price regulation policies issued by the National Development and Reform Commission, the Anti-Unfair Competition Law has added "anti-involution clauses," and the Ministry of Industry and Information Technology has launched a survey of outdated petrochemical plants, focusing on 2.85 million tons of overdue operating capacity and 2 million tons of long-term shut-in capacity. It is estimated that approximately 3 million tons of high-cost capacity will gradually exit the market, laying the foundation for medium-term market supply and demand improvement. However, policy implementation has a certain time lag, and it is difficult to change the current supply-demand imbalance in the short term.

PVC is expected to fluctuate and bottom out in the short term, awaiting structural improvement in the medium term.

In the short term, the fundamentals of the PVC market have not changed substantially. The core contradiction of high inventory, high operating rates, and weak demand will continue to dominate market trends, limiting the upside potential for futures prices. However, current market valuations have fully reflected the reality of weak supply and demand, coupled with bottom support on the cost side, limiting further downside potential for PVC prices.

In the medium term, the PVC industry will enter a structural improvement phase in 2026, characterized by capacity elimination and a moderate recovery in demand. As high-cost production capacity is phased out, peak overseas demand arrives, and infrastructure projects are gradually implemented, the supply-demand imbalance in the market will gradually ease. However, the fundamental problem of overcapacity in the industry still requires large-scale capacity reduction to achieve a rebalancing of supply and demand. Going forward, key monitoring should be conducted on the implementation of production reduction and maintenance measures by enterprises in January and February 2026, the progress of the real estate sector's resumption of work, the pace of infrastructure project commencement, and the implementation of export orders from India and Southeast Asia. Only when capacity reduction and improved demand resonate can PVC prices expect to see a trend of recovery.