Introduction: Tightening supply of feedstock ortho-xylene, coupled with anticipated plant maintenance, has widened the supply gap for ortho-xylene, driving up its price. This cost-driven factor has become the primary catalyst for the rise in the phthalic anhydride (PA) market.

Cost-Driven Surge Continues in PA Market Prices

Specifically, during this period, prices for ortho-xylene-based PA in Jiangsu increased, fluctuating within a range of 8,600-9,100 RMB/ton. Meanwhile, naphthalene-based PA in Hebei fluctuated between 7,800-8,150 RMB/ton. This cycle saw a general price push in the domestic PA market, primarily driven by rising costs of feedstock ortho-xylene for the ortho-xylene process. Anticipated production cuts in ortho-xylene have intensified supply tightness, leading to reduced operations or shutdowns at some ortho-xylene-based PA plants. Driven by these cost pressures, domestic ortho-xylene-based PA prices rose, although significant resistance to high-price follow-through from end-users was evident. In contrast, the naphthalene-based PA sector, benefiting from an oversupply of feedstock industrial naphthalene, enjoyed substantial immediate profits. This sector focused on locking in profits, widening the price gap between ortho-xylene and naphthalene-based PA. Consequently, some downstream customers of ortho-xylene-based PA switched to naphthalene-based sources, leading to improved firm demand transactions for naphthalene-based PA within the week.

| Figure 1: Domestic PA Market Price Trend (Unit: RMB/ton) | Figure 2: Domestic PA Industry Capacity Utilization Rate Trend |
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| Data Source: chempricehub | Data Source: chempricehub |

Improved Profitability in the PA Industry

This period saw the average weekly comprehensive profit for ortho-xylene at 520 RMB/ton, an increase of 40 RMB/ton from the previous period. Profits for ortho-xylene-based PA reached 92 RMB/ton, surging by 146 RMB/ton (up 270.37%). Naphthalene-based PA profits stood at 1,088 RMB/ton, rising by 141 RMB/ton (up 14.89%). Profits within the industrial chain showed a tendency to concentrate upstream, with some divergence: upstream ortho-xylene profits grew, alongside increased profitability in both ortho-xylene and naphthalene-based PA sectors. Among downstream products, DOP profits increased, while UPR profits narrowed. The recent PA price hike has increased cost pressure on downstream sectors, although downstream markets also showed a rebound, resulting in significant variation in profit levels. Due to their own demand factors, downstream PA industries generally maintained positive profits. For DOP, rising prices of octanol and PA within the week lifted costs, driving up DOP market prices and improving sector profitability. Conversely, the UPR sector experienced a decline in profits.

| Figure 3: PA Industry Chain Profit Trend (Unit: RMB/ton) | Figure 4: Domestic PA Key Downstream Capacity Utilization Rate Trend |
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| Data Source: chempricehub | Data Source: chempricehub |

PA Industry Faces Expected Supply Decline but Also Weakening Demand

This period witnessed a decline in PA supply, with a slight drop in ortho-xylene-based PA and reduced operating rates in the naphthalene-based PA sector, leading to lower industry output and capacity utilization. As import volume is negligible, weekly overall supply assessment excludes imports and relies solely on domestic PA production. In terms of downstream consumption, DOP and DBP consumption remained stable, while UPR consumption and exports declined. Overall consumption is assessed as decreased, resulting in a supply-demand balance tilting towards oversupply, with the surplus widening compared to last week. The supply-demand balance within the cycle aligned with prior expectations. While supply-demand data provided some market support, declining downstream demand consumption led to resistance against high-priced new orders, hindering follow-through on transactions at elevated levels. Looking ahead to the next period, the supply side is expected to decline due to fewer-than-expected resumptions and anticipated plant shutdowns. On the consumption side, downstream operations are expected to slightly weaken. Although theoretical supply exceeds theoretical demand, the absolute value of the supply-demand surplus shows a downward trend, which may offer some price support.

It is projected that the supply-demand gap for PA will widen in the next period. However, with strong cost support for ortho-xylene-based PA, its prices may stabilize, while naphthalene-based PA market prices are expected to trend slightly higher. Key points to watch:

1. Supply Side: Overall PA industry operating rates are expected to decline next period, remaining at low levels, indicating limited market supply pressure.
2. Demand Side: Downstream demand is anticipated to weaken slightly due to expected lower operating rates, leading to an overall decrease in consumption.
3. Cost Side: Costs for ortho-xylene-based PA are expected to remain stable, with strong cost support from this sector. Feedstock industrial naphthalene is likely to move sideways, providing insufficient cost support for the naphthalene-based PA sector.