Europe melamine buyers set to battle Q3 hikes

04 June 2008 16:30  [Source: ICIS news]

LONDON (ICIS news)--With negotiations expected to start in earnest over the next week, European melamine buyers said on Wednesday they were going to engage in a fraught battle as the full force of sellers’ targeted hikes for third-quarter business sank in.

 

DSM announced last week it would be looking for an increase of approximately €200/tonne ($308/tonne) across Europe with immediate effect or as contracts permit.

 

A second major producer said it had opted for the same level of increase, compared with second-quarter melamine settled at €1,360-1,440/tonne FD (free delivered) NWE (northwest Europe)

 

Both sellers argued that the change in supply and demand dynamics, coupled with the spiralling cost of raw materials had led them to their decision.

 

“Melamine needs a fundamental margin change,” one said.

 

Following a spate of production issues, availability had been tight, producers said, which was only heightened by the limitation on Chinese imports due to the 12 May earthquake.

 

Furthermore, the issue of rising urea values was throwing up a problem for sellers, who said it made little sense to produce melamine at current price levels when urea was fetching much larger sums.

 

Buyers, however, were fiercely opposed to the extent of the increase, stating that they had not expected to see anything above double figures bandied about.

 

They said they were unsure how they would absorb such large numbers, deeming the figure extremely high compared with previous announcements.

 

“In light of the €50/tonne increase in Q2 [the second quarter], we didn’t expect anything above €100/tonne and now we’re uncertain of our starting point,” one said.

 

There were fears that their customers would be unable to cope with the increase, rendering margins untenable and possibly pushing players out of the market.

 

($1 = €0.65)

By: Fiona Bond
+44 20 8652 3214

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