Entering this week, international crude oil prices fell on signals of easing tensions from US-Iran negotiations, while commodity futures markets corrected, heightening market caution. Combined with negative feedback from demand, the domestic phthalic anhydride (PA) market came under pressure at elevated levels.
Crude Oil Volatility Stalls PA Market Rally
Specifically, during this period, Jiangsu OX-based PA prices rose within a range of 9,300–9,400 yuan/ton, while Hebei naphthalene-based PA prices fell within a range of 8,200–8,400 yuan/ton. Domestic PA prices diverged during this cycle: OX-based PA prices shifted to a higher level, while naphthalene-based PA prices rose before pulling back. At the start of the week, international crude oil prices tumbled on Middle East geopolitical factors, intensifying wait-and-see sentiment and leaving market participants broadly bearish. However, supported by low OX-based PA inventories and low industry operating rates, spot supply in South China remained tight, pushing the market price level higher. Yet follow-through buying at elevated levels weakened. Meanwhile, naphthalene-based PA sales at high prices met with resistance. Under negative feedback from downstream demand, naphthalene-based PA prices rose and then drifted into a gradual decline, with weekly trading volumes contracting noticeably.
Persistent OX Supply Shortage Caps PA Industry Operating Rates
Since Q2 this year, amid intensive maintenance at ortho-xylene (OX) units, domestic OX industry capacity utilization has continued to slide. In July, the domestic OX industry operating rate fell to 46%, a five-year low. In the first half of this year, OX exports reached 164,500 tons, up 13% year on year and accounting for about one-quarter of total domestic OX supply during the period, further exacerbating the domestic OX supply shortage. In August, Yangzi Petrochemical's unit remains shut down, Hainan Refining & Chemical is under maintenance, Fuhaichuang's unit has been postponed to the end of the month, and Hongrun Technology's unit is under maintenance until the end of the month. As a result, domestic OX capacity utilization is expected to stay at low levels, and the market supply shortage is unlikely to ease. Due to insufficient OX feedstock supply, OX-based PA industry capacity utilization has also been declining alongside the OX sector since Q2. After several months of sustained low operating rates, social inventories in the OX-based PA industry have been fully drawn down, and output is expected to remain low in August. Supply-side pressure is therefore limited and will continue to provide key support to the market.
Negative Demand Feedback Dents PA Consumption
During the week, operating rates of major downstream sectors declined from the previous period: DOP, DBP, and UPR operating rates all fell. The operating rate of China's unsaturated polyester resin (UPR) industry stood at 33% during the week, edging down period on period. UPR plant production was generally stable to weak. Notably, one unit in Tianjin was idled for a short-term shutdown, one unit in Liaoyang was taken offline at the same time, two units in Shandong were running at reduced loads, and one unit in Guangzhou was also operated at a reduced rate, leading to a slight decline in output and an overall softening supply pattern. In the coming period, considering recent maintenance and restart schedules, UPR operating rates are expected to decline, DOP operating rates are expected to decline, and DBP operating rates are expected to remain stable. On the supply side, more units are expected to resume production than to enter shutdown, pointing to stronger supply; on the consumption side, downstream unit operating rates are expected to fall. Theoretical supply thus exceeds theoretical demand, and the absolute value of the supply–demand balance gap is trending upward, which will exert downward pressure on prices.
Looking ahead, the gap between PA production/sales supply and demand is likely to widen. However, with inventories in the domestic PA industry at low levels and OX feedstock supply still tight, OX-based PA prices are expected to fluctuate at high levels, while naphthalene-based PA prices may continue to probe lower. Key factors to watch: 1. Supply: Overall PA industry operating rates are expected to rise next period, but remain at low levels overall, limiting supply-side pressure. 2. Demand: Operating rates in the major downstream plasticizer sector are expected to decline, and overall consumption is expected to contract, becoming the main factor weighing on the market. 3. Costs: Feedstock costs for OX-based PA are expected to strengthen, but given the industry's high margins, cost-side support is expected to be limited. Meanwhile, weekly average prices of industrial naphthalene are expected to decline, slightly weakening cost support for naphthalene-based PA.
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