Low industry inventory leads phthalic anhydride market into an accelerating upward phase.

Lead: Entering this week, driven by concentrated short covering in the previous period combined with renewed geopolitical conflicts in the Middle East, domestic phthalic anhydride (PA) prices have accelerated upward.

Short Covering Drives Accelerated Rise in Phthalic Anhydride Market

Specifically, during this period, the price of ortho-xylene-based PA in Jiangsu rose, with the price fluctuation range between 7,800-8,500 CNY/ton; the price of naphthalene-based PA in Hebei also increased, with a fluctuation range of 7,200-8,000 CNY/ton. During this cycle, domestic PA market prices rebounded, with tight supply becoming the main factor driving the market rebound. Due to the continuous decline in PA prices earlier, coupled with increased maintenance shutdowns in the PA industry, the capacity utilization rate of the domestic PA industry was low. The industry has been in a continuous state of inventory reduction, and downstream inventories were also depleted. Amid renewed US-Iran conflicts, crude oil led to a rise in commodity futures market prices, fostering a strong speculative atmosphere. With low inventory levels in the domestic PA industry and the expectation of upward cost-side pressure, domestic PA market prices entered an accelerated uptrend.

Ortho-xylene Capacity Utilization at Historic Low; Cost Uplift Expected

Due to concentrated plant maintenance, the capacity utilization rate of the domestic ortho-xylene (OX) industry is at a historic low. The tight supply situation in the spot market continues, with virtually no spot goods available for circulation, leading to a strongly controlled market. Coupled with stronger cost support from the upstream aromatics chain, amid tight supply and a rebound in demand, domestic OX prices are expected to increase. This will strengthen cost support for the ortho-xylene-based PA industry, becoming a key supporting factor for the market.

Improved Demand Side Supports Market Strength

Driven by the Middle East geopolitical conflict, international crude oil has led to a significant rise in commodity futures market prices. The strong speculative atmosphere has also improved conditions for downstream demand-side products, strengthening demand-side support for the PA market. The operating rate of the major downstream product DOP has increased, DBP operation is stable, and UPR operating rates have risen. The weekly operating rate of China's unsaturated polyester resin (UPR) reached 34%, showing a slight recovery in overall operating levels, with capacity utilization improving compared to the previous period. UPR plant operations are generally stable with an improving trend. A unit in Anhui had a successful trial run, while units in Suzhou, Fujian, and Guangdong each increased operating loads, leading to a slight increase in total output compared to earlier periods, indicating a growth trend in market supply.

It is expected that the supply-demand gap for PA in the next period may narrow. However, with low inventory levels in the domestic PA industry and strong willingness to support prices, the center of gravity of domestic PA market prices is still expected to trend higher. Key points to watch:

1. Supply Side: Overall operating rates in the PA industry are expected to increase in the next period, but overall industry operations remain low. With oversold industry inventories, supply side pressure is limited.
2. Demand Side: Operating rates in the major downstream plasticizer industry are still expected to increase, with overall consumption projected to grow.
3. Cost Side: Costs for ortho-xylene-based PA raw materials are expected to rise, strengthening cost support from the ortho-xylene-based PA industry. Industrial naphthalene raw material prices are also expected to increase, raising cost expectations for the naphthalene-based PA industry.