An anemic US housing market is expected to continue restraining domestic demand for polyvinyl chloride (PVC) and chlor-alkali during the first half of 2026, prompting US producers to push more PVC into the export market.
US Federal Reserve policymakers have cut their target interest rate three times since September, but market participants do not expect lower borrowing rates to significantly boost demand for housing — a major PVC derivative market — until the peak of construction season next summer at the earliest. To mitigate further price erosion and excess inventories, producers are expected to increase export sales, especially to India.
PVC producers expect the Fed will continue to cut interest rates in 2026 to help stimulate the domestic housing market, which was listless this year on rising prices and elevated mortgage rates. But producers may be disappointed, as Fed policy makers have penciled in just one quarter-point rate cut for next year. Lower Fed target rates can influence borrowing costs for mortgages, business loans, and other expenditures in the homebuilding sector.
Interest rates for a traditional 30-year fixed mortgage have remained above 6pc since September 2022, contributing to housing affordability issues that stretch back to 2021, according to data from Federal Reserve banks in St Louis and Atlanta.
Housing starts have been weak in the past three years as mortgage rates surged. Starts were at a 1.31mn unit annual pace in August, down from about a 1.6mn rate in 2021-2022.
US home builders have little incentive to develop new units, which in turn could support higher home prices in 2026 as homebuilding continues to be outpaced by a growing population. Meanwhile, weak housing demand and construction activity has left US PVC producers to manage an oversupplied domestic market, weighing on spot export prices and likely maintaining headwinds through the first quarter of 2026.
Spot export prices have been rangebound from $550-595/metric tonne (t) fas Houston since mid-October, as US exporters vie with competitive Chinese volumes into India — the largest global importer of PVC. Exports from the US to India are anticipated to rebound in 2026 as much of the regulatory headwinds that crimped shipments this year are largely resolved.
India earlier this year required foreign exporters to have their plants inspected and certified by the Bureau of Indian Standards (BIS) by June, which was eventually delayed to the end of the year. India in early November dropped those requirements, but confusion around the shifting BIS deadlines led US producers to limit shipments to India. Additionally, India approved preliminary anti-dumping rates on US and Chinese PVC exports but failed to fully implement the penalties — effectively eradicating the last trade barrier into the country.
US PVC exports to India in January-September this year fell by 68pc from the same nine-month period last year, according to US Census Bureau trade data compiled by Global Trade Tracker (GTT), largely because of various regulations and evolving trade policies. Exporters, though, are expected to reclaim lost market share in India in 2026, especially as the US housing market is anticipated to remain weak until the third quarter.
Increased exports should help draw down inventories early next year, after suppliers grappled with excess inventory and multi-year price lows. The export market may become more important to US producers if domestic demand remains weak. This is due to OxyChem's expanded Battleground plant in La Porte, Texas, coming on line by the end of 2026 or early 2027 and US chlor-alkali producer Olin focusing expansion plans on the PVC market.
Caustic soda prices
A bearish PVC market to start 2026 is expected to lend price support to caustic soda prices for fully integrated producers. Caustic soda is co-produced with chlorine, a critical feedstock for PVC manufacturing, and producers can increase caustic soda prices to preserve electrochemical unit (ECU) margins during periods of bearish PVC and chlorine market conditions.
An ECU is comprised by 1t of chlorine and 1.1 dry metric tonnes (dmt) of caustic soda.
Domestic producers and distributors raised caustic soda prices in monthly contract negotiations for much of 2025, helping to offset incrementally lower chlorine settlements, despite building caustic soda inventories during the second half of the year.
Domestic caustic soda inventories are poised to end the year at elevated levels following an estimated 5-10pc cut in US consumption and largely steady production for much of 2025. But to sustain a pricing strategy that maintains value in caustic soda, suppliers with deep-water access are expected to boost exports in 2026, primarily to Europe and Brazil, or peel back operating rates.
Further caustic soda price support next year is anticipated to be drawn from rising natural gas prices for electricity generation, which comprises about 70pc of total ECU variable costs in the US Gulf coast region, Argus estimates.
Average natural gas costs into electricity are forecast to climb by nearly 8pc next year to $4.20/mmBtu, according to the US Energy Information Administration's Short-Term Energy Outlook.
