From the chart above, it is evident that integrated profits from producing caustic soda and PVC maintained positive during most of 2024, with margins exceeding those of 2023. Particularly from mid-October onwards, as caustic soda prices rose, integrated margins further improved. As of November 14, the caustic soda/PVC integrated margin in the Shandong region reached RMB 791/mt, up RMB 412/mt from early October (RMB 379/mt). This margin growth was primarily driven by rising caustic soda prices, while PVC prices were on a downward trajectory. The decline in PVC prices can be attributed to shifting market sentiment and weak seasonal demand. At the end of September, China’s loose fiscal policies spurred optimism sentiments, leading to a rally in PVC futures. However, due to lackluster downstream demand during the peak season and reluctance to follow the price surge, downstream enterprises mainly consumed previously purchased low-priced feedstock inventory. As a result, PVC spot prices began to decline sharply after the National Day holiday.

As the caustic soda/PVC integrated margin improved YoY, the PVC industrial operating rate remained relatively high. From January to October, the average operating rate of the PVC industry was 76.26%, up 0.67 percentage points YoY.

From May to June 2024, the PVC powder industrial operating rate was higher compared to the same period in 2023. This increase was primarily due to improved integrated margins, driven by PVC price hikes. These price increases stemmed from unexpectedly strong macroeconomic easing policies, including the issuance of ultra-long special treasury bonds, reductions in provident fund loan rates, the removal of lower limits on mortgage rates, lower down payment requirements, and government initiatives to purchase unsold properties. These measures boosted macro sentiments and strengthened real estate-related commodities. As of May 29, the monthly average price of China’s calcium carbide-based SG-5 was RMB 5,886/mt, up RMB 268/mt or 4.77% from the previous month. From May to June 2023, the integrated profit was in deficit, so the PVC powder industrial operating rate moved down gradually.

In summary, with the PVC market facing a pronounced supply-demand imbalance, it is unlikely that profits from producing PVC powder will turn positive in the near term. The strategy of offsetting PVC losses with gains from caustic soda will likely persist. This dynamic highlights the strong positive correlation between caustic soda/PVC integrated margins and PVC industry operating rates.