Changes in the industrial structure of the PVC flooring industry
PVC floor, as a green and environmentally friendly floor decoration material, originated in Europe. In the early 1830s, the United States realized the industrial production of PVC flooring. In the 1970s and 1980s, European and American PVC flooring manufacturers further improved the performance of PVC flooring by improving the PVC process ratio. It also had advantages that traditional floors could not match, making it gradually become the next most popular floor after carpets, solid wood floors, and marble. A new type of floor decoration material. The consumer habits in Europe and the United States have a high degree of acceptance and recognition of PVC flooring. This has also made developed countries such as Europe and the United States become the world's leading consumer of PVC flooring. PVC flooring is also widely used in residences, hospitals, schools, and office buildings in Europe and the United States. , supermarkets, shopping malls and other places.
Nearly 50% of the global PVC upstream companies have production capacity in China. This is mainly due to my country's huge demand volume and unique coal production process, which has economic advantages in the face of the large-scale expansion of ethylene production. With the shift of global manufacturing, my country has gradually taken over the production and manufacturing of PVC flooring.
In the downstream of PVC, pipes and soft products are mainly domestic due to product characteristics and demand, and exports are relatively small. From the analysis of usage habits, our country's private residences and commercial places mostly use laminate wooden flooring and stone flooring. PVC composite flooring has a small domestic audience and the market size is relatively small; while Europe and the United States have a higher acceptance of PVC flooring, and the industry After the transfer, its own production capacity is small. Therefore, most domestic PVC flooring companies mainly export overseas European and American orders. Overseas demand has a greater impact on the PVC flooring industry.
Table 1: List of China’s PVC flooring exports
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Source: General Administration of Customs, Yongan Futures Research Center
The continued rapid growth in import demand for PVC flooring in Europe and the United States before 2021 will drive the continued expansion of my country's PVC flooring exports, with a compound annual growth rate of 21%; PVC flooring's proportion of total downstream demand has also increased from 3% in 2016 to the present around 12%. However, in recent years, due to factors such as Sino-US trade friction, global manufacturing transfers, and economic slowdown in developed countries in Europe and the United States, my country's PVC flooring exports have fallen sharply. In terms of export structure, orders from the United States have shrunk most significantly, with exports to the United States The share of PVC flooring in China also fell from 60% to 43%, and the total PVC flooring export volume fell by 20% from its high point.
Figure 1: Changes in China’s PVC flooring exports
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Source: General Administration of Customs, Yongan Futures Research Center
Affected by the Sino-US trade war in 2018, the US government imposed an additional 25% tariff on Chinese PVC flooring, which greatly reduced the price competitiveness of my country's PVC flooring. Since 2018, the demand for PVC flooring in the United States has maintained a compound annual growth rate of approximately 15%, but the annual growth rate of PVC flooring imported from China is only 5.8%. As can be seen from Figure 2, China’s proportion of U.S. PVC flooring imports has also declined significantly, from 85% in 2018 to 61% in 2023.
In order to avoid the high U.S. tariffs on Chinese PVC flooring and reduce labor costs, Chinese PVC flooring companies have invested in building factories in Vietnam, setting up factories in Vietnam to produce PVC flooring to take on American orders. As can be seen from Figure 2, since the United States imposed additional tariffs on China, Vietnam's PVC flooring exports to the United States have increased rapidly, from 140,000 square meters in 2018 to 120 million square meters, with an annual growth rate of 390%.
Table 2: List of U.S. PVC floor imports
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Source: USITC, Yongan Futures Research Center
Figure 2: Changes in U.S. PVC flooring imports
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Source: USITC, Yongan Futures Research Center
With the relocation of domestic PVC flooring production bases to Vietnam, the demand for PVC powder in Vietnamese factories has greatly increased. As can be seen from Figure 3, Vietnam's PVC imports from China will increase to approximately 220,000 tons in 2021. But the U.S. trade sanctions against China don’t stop there. The UFLPA (Xinjiang-related Act) implemented by the United States on June 21, 2022 has prompted local U.S. PVC flooring import companies to review their supply chains. The United States has asked Vietnamese flooring factories not to use For PVC originating in Xinjiang, it is required that any link in the production process of PVC powder must not involve Xinjiang-related raw materials. Since the main production areas of PVC in my country are concentrated in the northwest, and benefiting from local production cost advantages, exports are highly competitive. However, after the US traceability sanctions, my country's PVC powder exports to Southeast Asia have become significantly differentiated since 2022. PVC powder exports to Vietnam have dropped to 110,000 tons, and exports have shrunk by nearly 50%.
Figure 3: Overview of Vietnam’s PVC powder imports
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Source: UNComtrade, Yongan Futures Research Center
Figure 4: China’s PVC exports to Southeast Asian countries
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Source: General Administration of Customs, Yongan Futures Research Center
In addition, PVC traceability has a huge impact on the operations of my country's PVC flooring overseas companies, not only forcing local Vietnamese factories to change raw material procurement channels, but also causing some companies to greatly reduce their orders. Check the annual reports of listed flooring companies in 2023, and you will find that most of them have a significant decline in operating income. Among them, flooring company A has about 95% of its overseas orders from the United States. Due to the traceability of this round of PVC raw materials, its operating income in 2023 will only be 300-330 million yuan, a year-on-year decrease of 90%. The company's annual loss is about 250 million yuan, and its production and operations have received Serious impact. It can be seen from the floor import data in the United States that the U.S. economy is indeed resilient. Its real estate demand is affected by high interest rates. Floor imports fell by 9%, but the overall scale remains. According to the survey results of some well-known domestic flooring companies, overall flooring companies' sales to the United States will decline slightly in 2023. The main reduction comes from European orders. Affected by the recession of the European Union and the conflict between Russia and Ukraine, local demand for PVC flooring has weakened significantly. The U.S. manufacturing industry is returning and is investing in the construction of PVC flooring companies in the country. With breakthroughs in floor waterproofing technology, it is also trying to return to strengthened wooden flooring consumption. The U.S. market share may still decline in the future.
Figure 5: Revenue of some listed Chinese PVC flooring companies
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Source: WIND, Yongan Futures Research Center
Looking back at the U.S. real estate market, as the Federal Reserve tightens monetary policy, local mortgage interest rates continue to rise, suppressing residents' housing purchasing power, new home construction continues to decline, and has entered negative growth since the end of 2022, and the demand for PVC flooring and other building materials has also declined. obvious. Looking to the future, tracking data such as new housing starts in the United States, the negative growth rate of real estate has narrowed, and the Federal Reserve is expected to cut interest rates within the year, and local housing construction demand is expected to bottom out and stabilize; and since the fourth quarter of 2023, U.S. real estate indicators and PVC floor imports have both There is a month-on-month improvement. It is expected that although the demand for PVC flooring in the United States is suppressed by high interest rates, the stock demand is still there. Vietnam is still its main importer of PVC flooring, and is still expected to expand its market share in the United States in the future. The demand for PVC powder in Vietnam has growth potential. Judging from the distribution of PVC powder imports in Vietnam in 2023, due to the impact of traceability policies, China’s PVC powder export share has been replaced by Taiwan, Indonesia and the United States. The export logistics impact caused by the migration of the flooring industry chain has not shown the traditional product The trend is changing from finished products to intermediates.
Figure 6: U.S. real estate indicators and PVC floor imports 12MMA year-on-year
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Source: U.S. Department of Commerce, USITC, Yongan Futures Research Center
In summary, as demand in Europe and the United States bottoms out and stabilizes, East Asia's PVC flooring exports are expected to rebound. Due to high tariffs and the impact of raw material traceability, Vietnam may be the future destination for incremental exports of PVC flooring, thereby realizing incremental purchases of PVC powder from East Asia. The development of Vietnamese flooring companies is also marginally promoting the reshaping of Asian PVC logistics.
