Europe buyers hit by China melamine quake crisis

14 May 2008 13:30  [Source: ICIS news]

LONDON (ICIS news)--The European melamine market is likely to be significantly affected by the shutdown of plants in the Sichuan region due to Monday’s earthquake in China, market sources said on Wednesday.

 

“The Sichuan province has some of the biggest melamine factories and all shipments have been stopped or heavily delayed,” said one trader, adding that it was anticipating big problems in Europe.

 

The melamine produced in Sichuan was of a good quality, widely accepted by European consumers, sources said, so that options were very limited in terms of finding alternative volumes.

 

The European market itself was tight with European producers unable to offer much free availabililty.

 

Sources said the problem was first that the aftermath of the earthquake still needed to be assessed and, given the difficulties in reaching the regions worst-hit areas, it could take weeks or months.

 

“[Players] must be aware that the situation won’t be resolved quickly, it could take three or four months,” said one trader.

 

There were some unconfirmed reports the Chinese government had said other local melamine units should cover any shortfall on the domestic market, thereby reducing exports in total.

 

Additionally there was the concern melamine production could be halted altogether in order to preserve the feedstock urea for domestic use.

 

The Chinese government recently imposed an export tax of 135% in order to keep domestic urea within the country, putting downward pressure on domestic prices due to greater supply during the peak summer demand season.

 

China is a traditional exporter of melamine to Europe although this had only resumed in recent months as the weakness of the US dollar allowed importers to take advantage.

 

High Asian prices and tight supply had restricted exports throughout 2007 and particularly in the second half of the year.

 

Iranian volume was a potential alternative, said sources. Offer prices over the last couple of weeks have been very high and unworkable but given the prospect of little or no export from China, such prices were now looking more attractive.

 

“Everyone will be fighting for the same volumes” the trader said.

 

It was too early to determine the exact impact on European prices.

 

Second-quarter melamine contracts recently were agreed up an average €50/tonne ($76/tonne) at €1,360-1,440/tonne FD (free delivered) NWE (northwest Europe), and spot prices were assessed at $1,700-1,750/tonne CIF (cost insurance freight) NWE by global market intelligence service ICIS pricing.  

 

The quake’s epicentre was in Sichuan, where up to 14,866 people are feared dead.

 

($1 = €0.65)

 

For more on melamine visit ICIS chemical intelligence

To discuss the effect of the Chinese earthquake visit The Chinese earthquake on ICIS Connect. 

By: Nel Weddle
+44 20 8652 3214

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