China melamine trending down on weakening seasonal demand

SINGAPORE (ICIS)–Chinese melamine will be under more pressure as demand remains soft while new supply is expected to lengthen the market in the next few months.

Offers by melamine producers have already been reduced to stimulate demand, but prospects of a near-term recovery are slim if talks of new plants possibly coming on-stream in the next few months translate into reality.

In the first week of July, China-origin melamine cargoes were sold around mid $1,100/tonne, on a FOB (free-on-board) basis for July or early August lifting from China.

This was a good $30-50/tonne lower than what sellers of China-origin melamine materials had insisted on, just several weeks ago.

According to ICIS data, FOB China prices for melamine were assessed in the $1,170-1,200/tonne range on 27 Jun.

Downstream off-take in China has been “hard-hit”, a Chinese melamine producer said, by tight controls slapped by the authorities on industrial activities to ensure clean air.

This is a sustained campaign, which means no near-term respite in downstream operations.

A recent statement from the Chinese ministry of Ecology and Environment made clear its resolve to comprehensively reduce air pollution to achieve qualitative improvement in the environment by the year 2020.

Many smaller factories had to either run on lower rates, or even suspend production altogether, which cumulatively suppressed their requirements for various raw materials including melamine.

This has led to a downward spiralling of yuan-denominated prices, from well over yuan (CNY) 8000/tonne in April to barely above CNY 7,500/tonne this week.

Melamine sellers turned to the export market for some respite from poor domestic sales, but demand in southeast Asia, a regular outlet for Chinese melamine, is also dampened as operations at plywood laminate factories are crimped by a shortage of timber amid tighter anti-logging controls across the world for environmental protection reasons.

A key melamine application in the region is in the manufacturing of melamine formaldehyde used in laminate products.

Buying appetite in India is also lacklustre, in part because downstream manufacturing activities typically slow down during the flood-prone monsoon season from July to September.

The downside pressure on Chinese melamine prices may still prevail, especially if supply lengthens on budding talk that new plants may come on stream in China within the next half of the year.

A new 50,000 tonne/year unit in Dezhou of China’s Shandong province may be ready for production as early as August, market sources said.

Operated by China’s Shandong Hualu-Hengsheng, this will be the company’s second melamine facility, besides an existing 50,000 tonne/year unit in Shandong.

It is also said that construction is underway at several other locations, such as Sichuan and Xinjiang, which could add up to 100,000 tonne/year, or more, to China’s total melamine production capacity, when the plants are ready, possibly also within the year.

Further details are however not immediately available.

If Chinese output increases without corresponding improvement in demand, both within and outside of China, the additional length in supply is expected to keep Chinese melamine prices under pressure for some time more.

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Focus article by Ai Teng Lim