FocusAsia Q3 melamine values to rise on quake

20 May 2008 05:07  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Third quarter contract nominations for Asian melamine were increased by about 20% as the Sichuan quake had raised feedstock urea costs by tightening supply, a major European producer said on Tuesday.

Nominations were raised by at least $300/tonne to $1,900-1,950/tonne CFR (cost and freight) Asia.

“We have no choice but to increase the third quarter melamine contract prices by at least $300/tonne as we have to cover the feedstock urea costs which have shot up by about $300/tonne since April,” the producer said.

“The urea supply in China has been reduced due to the earthquake and it is very tight. We hear that urea prices have gone up to around $700/tonne FOB (free on board) China in the wake of a massive 8.0 magnitude earthquake which hit China last Monday, he added.

A Middle Eastern producer has concluded a urea deal at a record high $695/tonne at the 76th International Fertilizer Industry Association Annual Conference in Vienna, Austria.

Sichuan province, which housed many fertilizer companies, bore the brunt of the massive earthquake. Two fertilizer companies collapsed in the earthquake.

Several ammonia, urea and melamine plants stopped production as a precautionary measure. The Chinese government had ordered the plants to shut to avert any potential accidents.

The quake on 12 May in Sichuan in southwest China - which had Wenchuan county at its epicentre - was the biggest the country had experienced in more than 30 years. The official death toll stood at above 34,000 on Monday while the eventual numbers is expected to exceed 50,000. In terms of damages, the massive quake was estimated to have cost 14,207 industrial enterprises CNY 67bn ($9.4bn).

Customers were bracing themselves for a huge spike in melamine prices and there had been suggestions that spot prices might jump up to more than $2,000/tonne CFR Asia in due course.

A small melamine lot has already been sold at $1,975/tonne, according to a producer who said that customers themselves did not rule out that prices might hit 2,000/tonne in the third quarter.

“Although the impact on pricing may not be immediate, we are preparing ourselves for a big jump in prices in the third quarter, given that the urea supply will be severely reduced,” a major customer said.

Spot prices of Chinese melamine have now jumped to $1,650-1,700/tonne FOB China for June loadings, up about $100/tonne since early May.

Major Japanese melamine producers who were earlier considering a $200/tonne hike for third quarter contracts to around $1,800-1,850/tonne CFR Asia were reconsidering the market situation, given the sharp increase in the urea price.

“We will have to reconsider the market situation and will hike third quarter melamine contract prices by $300/tonne to $1,900-1,950/tonne CFR Asia if need be, and if possible,” a Japanese producer said.

Melamine spot prices have been rising since last year due to several factors, namely tight supply and the reduction in the export tax subsidy on a wide range of chemicals implemented by the Chinese government last July in a bid to rein in exports and to address the ballooning trade surplus with the West.

The melamine export tax rebate was reduced from 13% to 5%, which resulted in a fall in Chinese exports in the international market.

Currently, there was talk circulating the market that the 5% export tax subsidy on melamine might be done away with, but there has been no confirmation from the authorities so far.

Another reason for the upward melamine price spiral was the surge in urea prices following the recent 100 percentage point increase to 135% on the export tax of urea.

The Chinese authorities implemented this policy, effective from 20 April to 30 September to ensure sufficient domestic urea supply in China with the onset of the agricultural season.

($1 = CNY6.97)

By: Helen Yan
+65 6780 4359

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