Industry supply growth expectations weigh on the phthalic anhydride market at elevated levels.

Lead: Domestic phthalic anhydride industry inventories remain low, and the tight spot supply situation continues. This remains the main factor underpinning the market. During the week, driven by external macroeconomic factors, the market rallied and tested previous highs again.

Macro Factors Dominate; PA Market Rallies Before Pulling Back

In detail, phthalic anhydride (PA) prices rose and then fell during the current period. In Jiangsu, o-xylene-based PA prices moved within a range of 9,200–9,400 RMB/tonne; in Hebei, naphthalene-based PA prices saw a wider fluctuation range, trading at 8,200–8,500 RMB/tonne. Over the course of the week, the domestic PA market first advanced and then declined, with cost pressures and low inventories being the main drivers of the rally. Fuelled by rising raw material costs, coupled with oversold inventory levels in the PA industry and a sharp increase in commodity futures prices at the start of the week, speculative sentiment for higher prices was strong, and domestic PA prices hit a new high for the year. However, midweek, expectations of eased US-Iran tensions and normal shipping through the Strait triggered a sharp fall in crude oil and commodity futures prices. Market sentiment turned from bullish to bearish, and the domestic PA market became dominated by a wait-and-see mood. Prices consequently pulled back from the high and entered a gradual downtrend.

Growth in Demand from Key Downstream Sectors

Over the week, operating rates among key downstream sectors increased from the previous period, with rises in DOP (dioctyl phthalate), DBP (dibutyl phthalate), and UPR (unsaturated polyester resin) operating rates. China's UPR operating rate stood at 33% for the week, with overall capacity utilization stable from the prior cycle. Production conditions at UPR plants remained broadly stable, with no load reductions or shutdowns during the week; output was unchanged from the previous week. Looking ahead to the next period, taking recent maintenance and restart activities into account, capacity utilization is expected to increase across the UPR, DOP, and DBP sectors.

Table 1 Domestic Supply-Demand Balance (Unit: 10,000 tonnes)

Source: Chempricehub

During the current period, PA supply increased. The operating rate for o-xylene-based PA rose slightly, while naphthalene-based PA industry operating rates increased further; overall industry output expanded, and capacity utilization rose modestly. Imports account for a negligible share, so weekly total supply is assessed based on PA output alone. On the demand side, DOP consumption rose, DBP consumption rose, UPR consumption held steady, and exports declined modestly; overall consumption is assessed to have increased. The supply-demand balance showed oversupply, with the balance gap widening from the previous week. The supply-demand situation during the period was in line with earlier expectations. Although supply-demand data lent some support to the market, downstream players showed clear resistance to chasing high prices and were reluctant to accept goods. For the next period, the number of suppliers resuming operations is expected to exceed the number of planned shutdowns, so supply is likely to grow. On the demand side, downstream units are also expected to increase. As a result, theoretical supply will exceed theoretical demand, and the absolute value of the supply-demand gap is trending upward, which will exert downward pressure on prices.

The production-sales supply-demand gap for PA is expected to widen in the coming period, and with expectations of new PA capacity coming on stream, market prices could pull back. Key points to watch:

1. Supply side. The overall operating rate of the PA industry is expected to rise next period, easing the tight supply situation to some extent and increasing market supply pressure.
2. Demand side. Operating rates in the main downstream plasticizer industry are expected to increase, with overall consumption projected to grow.
3. Cost side. Raw material costs for o-xylene-based PA are expected to remain stable, and cost support for the o-xylene-based PA sector remains strong. Industrial naphthalene prices are expected to rise, pointing to stronger cost support for the naphthalene-based PA sector.