Summary

Before the May Day holiday, driven by negative demand feedback, domestic phthalic anhydride (PA) prices continued to decline. However, as the price spread between ortho-xylene (OX)-based PA and naphthalene-based PA widened, combined with a rebound in international crude oil prices, the market received strong support. Domestic naphthalene-based PA industry inventory was successfully cleared, and the naphthalene-based PA market rebounded.

1. Market Review (April 27 – April 30)

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Before the May Day holiday, domestic PA market prices experienced a decline, with demand-side factors still dominating the market. During the week, demand remained persistently sluggish, compounded by expectations of plant shutdowns for some downstream customers during the holiday, which intensified market caution. Under conditions of high operating rates in the PA industry, the market faced sustained selling pressure, leading to price drops. In the latter half of the week, the strong rise in international crude oil prices provided some boost to market sentiment, driving increased transaction volumes in the naphthalene-based PA sector. As a result, naphthalene-based PA inventory was oversold into mid-to-late May, stabilizing the naphthalene-based PA market. However, due to the wide price gap between OX-based and naphthalene-based PA, prices for OX-based PA continued to decline.

2. Data Analysis

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From the perspective of profitability for PA and its major downstream plasticizers, PA product profitability decreased, while downstream DOP (dioctyl phthalate) profitability increased. DOP profitability improved compared to the previous week, mainly because the feedstock PA prices fell during the week. Consequently, DOP profitability (128 yuan/ton) was better than that of DOTP (dioctyl terephthalate).

The theoretical profit for PA has been in long-term loss territory. However, some PA units are primarily integrated with their own downstream facilities. Considering steam efficiency benefits, the industry has a relatively high tolerance for losses. Unless losses are sustained and severe, they generally do not decisively impact production plans. Nevertheless, due to the recent improvement in profitability for naphthalene-based PA, industry production enthusiasm has been high, leading to an increase in restarts in this sector. In the week before the May Day holiday, the profit for OX-based PA was -450 yuan/ton, a decrease of 120 yuan/ton from the previous period, or a 36.36% decline. The profit for naphthalene-based PA was 1,055 yuan/ton, a decrease of 233 yuan/ton, or 18.09% decline.

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Before the May Day holiday, operating rates at major downstream plasticizer plants for PA showed little change, mostly maintaining medium-level production. Some units that were under maintenance or reduced output plan to ramp up in May. DOP operating rate was 58%, down 3 percentage points. Nanjing Libang's unit restarted, Lanfan's large unit restarted after a brief shutdown, Zhenjiang Liancheng reduced output, and Weibo's unit experienced a brief shutdown.

3. Post-Holiday Trend Outlook

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It is expected that after the May Day holiday, the supply-demand gap for PA will continue to widen. Although feedstock ortho-xylene (OX) supply remains tight, inventory of OX-based PA is expected to grow, leading to a likely price decline. Meanwhile, naphthalene-based PA inventory is oversold, supporting a market rebound for that segment. Key points to watch include: 1. Supply: After the holiday, the overall operating rate in the PA industry is expected to decline, easing the supply pressure for OX-based PA. 2. Demand: In the coming period, downstream operating rates are expected to weaken slightly, leading to reduced demand from downstream industries and an overall consumption decrease. 3. Cost: The cost side for OX-based PA is expected to remain stable, providing strong support from the OX-based PA production cost. Conversely, industrial naphthalene feedstock prices are expected to weaken, leaving naphthalene-based PA with insufficient cost support.