China Phthalic Anhydride Market in May: Price Spike Followed by Correction Amid Prolonged Supply-Demand Tug of War

In May, China's phthalic anhydride (PA) market exhibited a volatile "N-shaped" price trend. Both o-xylene-based PA and naphthalene-based PA prices experienced a brief rally after an initial dip, followed by a gradual decline and a return to a weakly oscillating state. This reflected an intense supply-demand tug of war. In terms of price movement, East China o-xylene-based PA prices peaked at RMB 7,000/ton in mid-May before softening to RMB 6,850/ton by May 27. Similarly, naphthalene-based PA in Hebei fell from RMB 6,700/ton to around RMB 6,450/ton. The recent price swings were driven by a combination of cost-push factors and optimistic demand expectations, but also revealed downstream buyers' resistance to high raw material prices. As a result, the market began to recalibrate in a tension-filled balance between bullish expectations and weak realities.

In early to mid-May, the PA market saw a modest upswing, primarily supported by a broader recovery in bulk commodity prices and a round of downstream restocking. During this phase, supply-demand dynamics improved temporarily. On the cost side, prices of upstream raw materials-industrial naphthalene and o-xylene-remained firm, providing a strong floor for PA prices. Sentiment across the market was broadly bullish, with suppliers holding firm on their offer levels.

As PA prices approached higher levels, the market entered a standoff phase. Suppliers continued to quote firmly, but resistance from downstream buyers intensified. Purchasing slowed and a strong wait-and-see sentiment emerged, underscoring the lack of follow-through in demand. Notably, despite low inventory levels across the PA sector, the market was stuck in a stalemate between solid cost and supply support versus soft demand. While sellers attempted to maintain prices, actual trading volumes thinned, laying the groundwork for the subsequent downturn.

In late May, the market entered a downward correction. East China o-xylene-based PA prices dropped from RMB 7,000/ton to RMB 6,850/ton, while Hebei naphthalene-based PA fell from RMB 6,600/ton to RMB 6,450/ton. The core issue shifted to a growing supply-demand imbalance: high operating rates across the industry led to increasing supply-side pressure, while terminal demand remained sluggish, causing inventory accumulation at the producer level. Traders came under pressure to move stock, resulting in price concessions and promotional sales. In addition, falling industrial naphthalene tender prices during the week further eroded cost support, potentially accelerating the market downturn.

The PA market is currently weighed down by the dual pressures of ample supply and weak demand. On the supply side, persistently high operating rates are creating ongoing destocking pressure. On the demand side, downstream industries such as plasticizers are showing muted performance, with buying mostly limited to essential needs. Although the cost side offers some limited support, bearish sentiment continues to dominate. PA producers in China are facing a difficult balancing act between protecting margins and ensuring shipment flow. In the near term, PA prices are likely to remain weak and range-bound, awaiting new market drivers. Attention should be paid to raw material price trends and the pace of restocking by downstream buyers.