Introduction: Geopolitical conflicts in the Middle East persist, keeping international crude oil prices at elevated levels. Strong cost support from the upstream aromatic hydrocarbon supply chain has led to a shortage of raw material ortho-xylene. Consequently, domestic phthalic anhydride (PA) industry utilization rates have continued to decline. Driven by rising costs, domestic PA market prices surged to new highs once again.
Specifically, during this period, the market price of Jiangsu-based ortho-method phthalic anhydride rose, fluctuating within the range of 10,200–10,600 RMB/ton. The market price for Hebei-based naphthalene-method phthalic anhydride also increased, with fluctuations ranging between 9,200–9,600 RMB/ton. In this cycle, domestic PA market prices climbed, with cost-side factors remaining the primary driver. Insufficient supply of raw material ortho-xylene led to a continuous decline in capacity utilization within the domestic ortho-method PA industry. Compounded by reduced production at Gulai Chemical’s PA units, domestic supply of ortho-method PA tightened significantly. This exacerbated the shortage in the Jiangsu region, becoming the main factor pushing up the PA market. Amidst the tight supply of ortho-xylene, strong cost-driven upward momentum and bullish market sentiment facilitated rapid price increases. However, insufficient demand follow-through placed pressure on high prices. Negative feedback from end-user demand gradually transmitted through the market. Additionally, the restart of previously shut-down ortho-method PA units in Jiangsu shifted market sentiment toward bearishness. Domestic naphthalene-method PA prices led the decline, and weekly trading volumes contracted noticeably compared to the previous week.
Recently, due to the persistently wide price gap between domestic ortho- and naphthalene-method PA supplies, naphthalene-method PA partially substituted for ortho-method PA. Industry inventories for naphthalene-method PA were generally oversold. Due to its relatively lower price compared to the ortho-method, naphthalene-method PA typically leads gains during each market rebound. However, following the National Day holiday, the current rise in PA prices was driven by the ortho-method segment. With tight supply in the ortho-method market, prices pushed up markedly. Naphthalene-method PA also followed suit rapidly due to rising costs. While the price gap between ortho- and naphthalene-method PA narrowed slightly compared to previous periods, it remained at a high level.
| Figure 1: Trend Chart of Domestic Phthalic Anhydride Market Prices (Unit: RMB/ton) | Figure 2: Trend Chart of Price Spread Between East China Ortho-Method PA and Hebei Naphthalene-Method PA (Unit: RMB/ton) |
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| Data Source: Chempricehub Information | Data Source: Chempricehub Information |
Affected by insufficient supply of raw material ortho-xylene and equipment issues, the capacity utilization rate of the domestic PA industry has shown a sustained downward trend recently, leading to a continuous decrease in market supply. According to Chempricehub data monitoring, the domestic PA industry capacity utilization dropped to 52% this week, down 7 percentage points from pre-holiday levels and 10 percentage points year-on-year. Impacted by the shortage of ortho-xylene, the capacity utilization of the domestic ortho-method PA industry fell to 47%. Naphthalene-method units experienced more frequent maintenance shutdowns due to catalyst and equipment issues, causing the naphthalene-method PA industry capacity utilization to drop to 57%, further intensifying the tight spot supply situation. By region, the shortage of ortho-xylene in East China exacerbated supply tensions for ortho-method PA in parts of the region. Meanwhile, the sudden shutdown of Gulai Chemical’s PA units helped alleviate the oversupply situation in South China, moving the regional market towards a supply-demand balance.
However, expectations of a slow recovery in raw material ortho-xylene supply, particularly driven by slight production increases at Yangzi Petrochemical, have provided minor relief to ortho-xylene supply in Jiangsu. This subsequently boosted the capacity utilization of the Jiangsu ortho-method PA industry. This dynamic constitutes the main logic behind the current bullish sentiment in the PA market. As production in Jiangsu increases, the factors that previously supported higher prices are weakening.
| Figure 3: Trend Chart of Domestic Phthalic Anhydride Industry Capacity Utilization |
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| Data Source: Chempricehub Information |
During this period, PA supply declined as operating rates for both ortho- and naphthalene-method segments fell, resulting in an overall decrease in industry output and capacity utilization. Import volumes are negligible; therefore, weekly total supply is assessed based solely on domestic PA production without considering imports. On the consumption side, demand for DOP, DBP, and UPR all increased, while export volumes decreased. Overall consumption is assessed as growing. The supply-demand balance indicates supply falling short of demand, resulting in a negative balance gap. The supply-demand dynamics within the cycle aligned with previous expectations, providing some support to the market via supply-demand data. However, downstream resistance to purchasing at high price levels hindered transactions. Looking ahead, supply-side recovery is expected to exceed anticipated downtime, leading to growth in supply. Downstream unit expansions are also expected, theoretically suggesting supply will exceed demand. The absolute value of the supply-demand imbalance is trending upward, which will exert pressure on prices.
It is projected that the domestic PA supply-demand gap may widen in the next period. With expectations for improved capacity utilization in the domestic PA industry and negative feedback from demand, domestic PA prices are expected to face pressure and retreat from recent highs. Overall, while raw material ortho-xylene supply remains tight, the gradual restart of previously maintained units may alleviate local supply shortages, particularly in Jiangsu where the ortho-xylene deficit is being repaired slightly. This supports an expectation for increased operating rates in the ortho-method PA industry, loosening the primary driver of the current price rally. Consequently, the high premium for Jiangsu ortho-method PA caused by earlier shortages may gradually dissipate. Similarly, in the naphthalene-method PA sector, the resumption of operations at previously maintained units, combined with negative feedback from end-user demand, suggests that market prices remain likely to continue declining.
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