Widening Price Spread Between Naphthalene and Phthalic Anhydride; Phthalic Anhydride Market May Re-diversify

Lead-in: Anticipated impacts from concentrated maintenance in the naphthalene-based phthalic anhydride (PA) sector have led to expectations of reduced demand for the feedstock, industrial naphthalene. This has caused a sharp drop in industrial naphthalene prices, collapsing cost support for the naphthalene-based PA industry and triggering a significant decline in domestic PA market prices.

Cost Support Collapses; PA Market Prices Fall

Specifically, during this period, the market price of ortho-xylene (OX)-based PA in Jiangsu fell, with the price range fluctuating between 9,800–10,250 RMB/ton. The market price of naphthalene-based PA in Hebei also declined, with the price range fluctuating between 8,500–9,350 RMB/ton. During this cycle, domestic PA market prices dropped, with cost-side factors serving as the primary driver of the downturn. Early in the week, expectations of easing tensions in the Middle East led to lower crude oil prices, weakening cost support from the upstream aromatic hydrocarbon supply chain and intensifying wait-and-see sentiment in the market, resulting in a gradual downward trend. However, under the influence of anticipated maintenance in the naphthalene-based PA sector, the price of industrial naphthalene plummeted. This collapse in cost support for naphthalene-based PA, combined with pre-holiday inventory clearance initiatives within the industry, caused naphthalene-based PA market prices to dive. Nevertheless, as the price gap between OX-based and naphthalene-based PA widened, low-level transactions in the naphthalene-based PA market improved, while the OX-based PA market continued its weak downward trajectory.

Recently, due to the persistently high price gap between OX-based and naphthalene-based PA supplies in China, naphthalene-based PA has partially substituted for OX-based PA. Domestic inventories of naphthalene-based PA are generally oversold, and due to their relatively lower price compared to OX-based PA, the naphthalene-based PA market has been the leading force in each market rebound since September. However, starting in September, insufficient supply of industrial naphthalene led to a short-term sharp rise in feedstock prices. Driven by cost pressures, naphthalene-based PA prices increased, narrowing the price gap between OX-based and naphthalene-based PA and hindering sales at high price levels. But entering this week, amid the collapse of cost support, naphthalene-based PA prices fell sharply, widening the price gap between OX-based and naphthalene-based PA back to 1,000 RMB/ton.

Decline in Demand from Key Downstream Sectors

During the week, capacity utilization rates among key downstream sectors decreased compared to the previous period. Operating rates for DOP (dioctyl phthalate) increased, while those for DBP (dibutyl phthalate) and UPR (unsaturated polyester resin) declined. The weekly operating rate for Chinese unsaturated polyester resin was 32%, representing a slight decrease in overall capacity utilization compared to the previous week. Production conditions at unsaturated polyester resin plants remained largely stable. This week, a plant in Shandong reduced load, and a plant in Guangdong halted operations, resulting in a slight decrease in output compared to last week. Looking ahead, considering recent maintenance and restart activities, the capacity utilization rate for downstream UPR is expected to decline, DOP utilization is projected to fall, and DBP industry utilization is expected to remain stable.

Table 1: Domestic Supply-Demand Balance Sheet (Unit: 10,000 tons)

Data Source: Chempricehub Information

This period saw an increase in PA supply. Operating rates for OX-based PA rose, while those for naphthalene-based PA declined, yet overall industry output increased, raising the capacity utilization rate. The proportion of imports is negligible; therefore, total weekly supply assessments no longer account for import volumes and rely solely on PA production data. Regarding downstream consumption, DOP usage increased, while DBP and UPR usage declined. Export volumes rose, leading to an assessment of overall increased consumption. The supply-demand balance reflects excess supply, though the gap narrowed compared to the previous week. The supply-demand balance within the cycle aligned with prior expectations. Supply-demand data exerted some pressure on the market, with downstream resistance to purchasing high-priced goods being evident. For the next period, the supply side is expected to contract as more companies than anticipated resume operations after maintenance. On the consumption side, downstream units are expected to see declining activity. Theoretically, supply will exceed demand, with the absolute value of the supply-demand gap trending upward, thereby placing pressure on prices.

The supply-demand gap for PA is expected to widen in the next period. The price difference between OX-based and naphthalene-based PA remains large, and pre-holiday inventory clearance is anticipated, suggesting a weakening center of gravity for domestic PA market prices. Key focus areas include:

1. Supply Side: Overall operating rates in the PA industry are expected to decline next period. However, supply pressure in the South China region for OX-based PA remains high, meaning the market still faces continued inventory clearance pressure.
2. Demand Side: Operating rates for key downstream plasticizer industries remain low. There are expectations of declining activity in the downstream UPR sector, suggesting an overall reduction in consumption.
3. Cost Side: Cost support for OX-based PA is expected to remain stable, but tight supply of ortho-xylene continues to provide strong cost support for the OX-based PA sector. Conversely, industrial naphthalene prices are expected to weaken, leading to anticipated cost declines for the naphthalene-based PA sector.