According to China Chemical Industry News, phthalic anhydride produced via the ortho-xylene (OX) route and that produced via the naphthalene route have exhibited starkly different performance trends since the beginning of the year: the former has faced persistent losses, while the latter has enjoyed substantial profits, with margins at one point hitting multi-year highs. As of July 9, the profit gap between the two remained above 800 yuan per tonne. Looking ahead, while this divergence may narrow slightly in the short term, the cost advantage of naphthalene-based phthalic anhydride is expected to persist.

Divergent Raw Material Trends Lead to Massive Cost Gap

The price trends of ortho-xylene and industrial naphthalene have diverged significantly, directly dictating the vastly different cost bases for the two production processes.

Driven by geopolitical factors, international crude oil prices experienced volatile gains. As a petrochemical product highly correlated with crude oil prices, ortho-xylene saw its market price climb steadily, at one point breaching the 10,000-yuan mark to hit a historical high. However, following the US-Iran truce and the resumption of shipping through the Strait of Hormuz, the geopolitical risk premium that had previously driven the market upward dissipated rapidly. International oil prices trended downward, causing ortho-xylene prices to pull back; the price dropped by RMB1,000 during June alone. Despite this retreat, the market price of ortho-xylene hovered around RMB8,000 as of July 9—still more than RMB1,000 higher than at the start of the year.

Industry insiders noted that the average price of ortho-xylene in the first half of the year was approximately RMB 8,500—a relatively high level in recent years—exerting sustained cost pressure on downstream phthalic anhydride producers.

In stark contrast, industrial naphthalene—derived from the coal-chemical industry—bears no direct price correlation with international crude oil, allowing its cost structure to remain relatively independent and stable. This is reflected in its market price: since the beginning of the year, industrial naphthalene has traded between RMB 4,000 and 5,450, with an average price below RMB4,600. Compared to the average price of ortho-xylene, the spread between the two is nearly RMB4,000. This massive cost disparity gives naphthalene-based phthalic anhydride a cost advantage right from the start—one that the ortho-xylene route struggles to match. Divergent Profitability and Varied Corporate Performance

Cost disparities have directly impacted profitability, creating a stark contrast in earnings between phthalic anhydride (PA) produced via the ortho-xylene (OX) route and that produced via the naphthalene route; this has led to divergent trends in production willingness and plant operations.

According to SubSirs analysts, OX-route PA production has remained consistently unprofitable, with losses ranging from 200 to RMB 400 per ton. In mid-June, losses peaked due to a temporary surge in raw material prices; although losses narrowed subsequently as OX prices fell sharply, the simultaneous drop in PA prices caused losses to widen again to approximately RMB250.

Faced with persistent losses, the industry was forced to adopt measures such as concentrated maintenance shutdowns and reduced operating rates. By the end of June, the operating load for OX-route PA plants had dropped to 40%—a new low for that period in recent years. While operating rates rebounded slightly in July, they remained significantly below historical levels, reflecting the reactive stance companies have taken amidst ongoing losses.

The situation for naphthalene-route PA is vastly different. Following gradual price increases after mid-January, producers turned losses into profits; by the end of February, profit margins entered a sustained upward trend, briefly hitting a multi-year high of RMB1,800. Although margins subsequently narrowed, the average profit remained at RMB 726 . Driven by profitability, naphthalene-route PA plants maintained relatively high operating rates, with production enthusiasm notably higher than that of the OX route.

Varied Demand Transmission and the Dominance of Low-Priced Supply

There is a significant difference in how the downstream market accepts prices from the two production routes. This factor has not only exacerbated the profit gap between the two but has also influenced their respective market shares and sales patterns.

OX-route PA is primarily marketed to regions with high concentrations of fine chemical industries, such as East China, with downstream demand driven mainly by the plasticizer and unsaturated polyester resin sectors. Since the beginning of the year, the plasticizer industry has seen slow growth in operating rates, while demand in end-use sectors—such as PVC cable granulation and calendering films—has remained sluggish, resulting in very low tolerance for high-priced raw materials. A production manager at one enterprise noted that when producers of ortho-xylene-based phthalic anhydride attempted to raise quotes due to rising costs, they faced strong resistance from downstream buyers, making it difficult to effectively pass on the price increases.

The market situation for naphthalene-based phthalic anhydride is different. Because naphthalene-based material typically trades at a discount compared to the ortho-xylene-based variety, it holds inherent price appeal for downstream customers. By maintaining relatively low prices thanks to its cost advantage, the naphthalene-based product gains the upper hand in procurement, enjoying significantly smoother sales than its ortho-xylene-based counterpart.

This "low-price, high-volume" dynamic allows naphthalene-based phthalic anhydride to maintain steady sales and healthy profit margins even amidst sluggish demand. Furthermore, since the two products share some downstream applications, a widening price gap triggers a substitution effect that boosts the market share of the naphthalene-based product, thereby further solidifying its profitability advantage.

As temperatures rise, sectors such as PVC cable granulation and calendering film enter their traditional off-season, placing the overall phthalic anhydride market under pressure; consequently, ortho-xylene-based phthalic anhydride currently lacks the conditions for profitability. Meanwhile, with new production units scheduled to come online, the resulting increase in supply will likely intensify market pressure. Overall, the divergence in profitability between the two production processes is unlikely to be fundamentally reversed in the short term.

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