Construction activity may boost PVC, EPS demand in H1

The construction sector is set to face challenges in H1 2025 amid high interest rates, political uncertainties and trade barriers, but proactive government initiatives and construction recovery in China, India and the US could lead to better demand for key chemicals such as polyvinyl chloride (PVC) and expandable polystyrene (EPS).

Even with an increase in demand, there could be trade flow issues to navigate in 2025. President-elect Donald Trump has threatened to impose tariffs across multiple commodity flows into the US, and such protectionism could have a detrimental impact on chemical trade globally.

Underscoring the interconnectedness of global supply chains, a Southeast Asian chemicals distributor said the market needs to be "very cautious" with the actions of the Trump administration.

European political reforms bring uncertainty

To deal with the uncertainties abroad, European governments are pursuing supply-side reforms aimed at bolstering residential construction.

The UK's Labour government unveiled a budget in October that earmarked £500 million ($637.735 million) for the Affordable Homes Programme — and said it was the largest increase in social and affordable housing in a generation. This initiative, along with similar government proposals from Spain and Germany, aims to stimulate infrastructure investment and could provide much-needed support to the European PVC market.

While interest rates may have eased, political pressures surrounding housing shortages remain a significant concern in Europe.

China's stimulus measures, shifting trade dynamics

In China, the construction sector is expected to see acceleration in the first half of 2025, driven by a slower contraction in property markets and increased infrastructure investment, according to Xu Yating, principal economist at S&P Global Market Intelligence.

"We expect the housing market relaxations since September 2024 to facilitate the stabilization of housing sales and prices over the near term, and early signs of stabilization have already emerged," Xu said.

Xu added that "over the long term, we anticipate increased government spending to purchase land and housing, which will help with the stabilization in housing prices and investment as early as the end of 2025."

An increase in construction activity could improve demand for PVC in China's domestic market and possibly provide a boost to prices that have floundered in the second half of the year. PVC prices in the country were depressed after June dropping $70/mt from June 19 to $750/mt CFR on Dec. 11, according to Platts, part of S&P Global Commodity Insights, assessments.

China's PVC exports increased to 14% year on year to 2.17 million mt over January to October 2024. However, with the expected introduction of anti-dumping duties by India on Chinese PVC, suppliers may need to pivot their exports toward Africa or the Middle East. This shift could alter trade dynamics significantly, especially as the demand for construction materials remains high in these regions.

China also plans to add PVC capacity in the H1 2025, as Wanhua Chemical plans to start up its new 400,000 mt/year PVC plant in Q1, S&P Global Commodity Insights reported.

Funding issues for India construction

The growth of India's construction sector is likely to be hindered by funding challenges in government projects and tax-indexation issues in the private sector. However, experts predict a double-digit increase in demand for PVC, EPS and related chemicals by 2025, as government allocations for infrastructure in 2025-26 (April-March) could accelerate projects and boost chemical demand.

PVC demand in India is expected to increase, driven primarily by construction and agriculture sectors, particularly irrigation. With several ongoing and upcoming initiatives, including the Smart City project, the outlook in PVC demand in 2025 remains positive.

Prices could also find support with the Indian government considering anti-dumping duties on PVC to protect the domestic industry, and non-tariff barriers that could prevent inflow of cheaper Chinese PVC into the Indian market.

Economic recovery brings optimism in Americas

The outlook for the construction sector in 2025 appears more optimistic in the Americas. PVC producers are hopeful that recent interest rate cuts by the US Federal Reserve will stimulate construction activity and drive demand for PVC.

Rebuilding in the aftermath of an above-average 2024 hurricane season could lead to increased repairs and renovations, further boosting PVC demand.

The American Chemistry Council projects housing starts to reach 1.4 million in 2025, up from 1.35 million in 2024. This anticipated growth underscores the potential for heightened demand for PVC, especially as homebuilder confidence rises. Each single-family housing start is expected to require approximately 33,000 pounds of chemical products, indicating a significant opportunity for chemical manufacturers.

As global inflation control solidifies and monetary policies become less restrictive, expectations for a resurgence in economic activity are growing. This environment may foster increased investment in construction, ultimately benefiting the chemical sector.