Introduction: The easing of geopolitical tensions has led to a decline in commodity futures prices driven by crude oil, intensifying market wait-and-see sentiment. Concurrently, with the increase in the operating rate of the phthalic anhydride (PA) industry, supply pressure has intensified in some regional markets, putting downward pressure on high market prices.

Supply Increase Drives PA Market to Peak and Then Retreat

Specifically, during this period, the price of ortho-xylene (OX) process PA in Jiangsu surged initially before falling back, fluctuating within the range of 9,000-9,500 RMB/ton. The price of naphthalene process PA in Hebei fluctuated between 8,200-8,400 RMB/ton. This week, domestic PA prices followed a pattern of rising and then falling, with supply-side factors becoming the dominant market driver. At the beginning of the week, driven by cost factors due to an increase in the price of feedstock ortho-xylene, domestic PA prices rose. However, significant resistance to high prices from downstream demand, coupled with increased operating rates in the PA industry and rising supply pressure for OX-process PA in South China, led to negative feedback from demand, putting pressure on high domestic PA prices. In the latter half of the week, with the easing of geopolitical conflicts in the Middle East, domestic PA prices showed a downward trend.

PA Industry Chain Profits Remain Concentrated Upstream

This period saw a concentration of profits upstream in the industry chain, with a certain degree of profit differentiation. Profits for upstream ortho-xylene increased, while profits for the OX-process PA industry slightly declined, and profits for the naphthalene process PA industry grew. Among downstream products, profits in the DOP industry decreased, and losses in the UPR industry narrowed. The recent price increase of PA has raised cost pressure for downstream sectors. Although downstream markets also showed a rebound, profitability levels varied significantly. Due to their own demand factors, profits in most downstream PA industries were generally positive. For DOP, prices of 2-ethylhexanol (2-EH) and PA rose during the week, increasing costs, while DOP market prices fell, leading to a decline in industry profits. For UPR, industry profits also decreased.

PA Industry Supply Growth Expected, But Demand May Weaken

This period saw an increase in PA supply, with growth in both OX-process and naphthalene process PA production, leading to higher industry output and capacity utilization. The share of imports is almost negligible, so the weekly overall supply assessment no longer considers import volume, focusing only on domestic PA production. In terms of downstream consumption, DOP consumption decreased, DBP consumption remained stable, UPR consumption declined, and exports fell. Overall consumption is assessed as having decreased, resulting in a supply exceeding demand situation, with the supply-demand gap widening compared to the previous week. The supply-demand balance during the period aligned with prior expectations. Supply-demand data exerted some downward pressure on the market, and declining downstream demand consumption led to significant resistance to new high-priced orders, hindering high-price transaction follow-through.

Looking ahead to the next period, market supply is expected to increase as more plants resume operations than anticipated units are shut down. Meanwhile, downstream plant operations are expected to slightly weaken, leading to a projected decrease in consumption. Theoretically, supply is expected to exceed demand, and the absolute value of the supply-demand gap is trending towards widening, which will impose some constraints on prices.

It is forecasted that the supply-demand gap for PA will widen in the next period. Although cost support for OX-process PA remains strong, expectations of rising OX-process inventory may lead to a downward price trend, and naphthalene process PA prices are also expected to decline. Key points to monitor include:

1. Supply Side: Overall PA industry operating rates are expected to increase next period, with supply pressure for OX-process PA intensifying in some regions.
2. Demand Side: Downstream operating rates are expected to slightly weaken next period, leading to decreased demand from downstream industries and an overall projected reduction in consumption.
3. Cost Side: Cost support for feedstock OX-process PA is expected to remain stable and strong. However, with an expected weakening in the price of feedstock industrial naphthalene, cost support for the naphthalene process PA industry may be insufficient.