25 April 2012 17:14 [Source: ICIS news]
LONDON (ICIS)--Third-quarter European melamine contracts are likely to firm, but a lot depends on the strength of the economy, sources said on Wednesday.
“The fact remains that with the current margins, as a producer, it is far from satisfactory,” one producer said. “The pressure for higher prices will continue.”
“For the third quarter, prices will go up because they are too low,” another producer said.
It is too early for any clear indication as to the amount that prices may move up in the third quarter, but some buyers said they expect increases to match the rises of their second-quarter contracts, or slightly more, despite demand in western Europe being lacklustre, and availability good.
“In the third quarter, my guess is that prices will go up, perhaps there will be maintenance breaks or producers will artificially reduce output,” one buyer said. “Demand usually comes down by about 60-70% in August because most people are on holidays. But the producers will do something.”
“It is clear that the price should go up, at least from a supplier’s point of view,” another consumer said. “And I fear for Q3. There is certainly enough product in the market. I’m afraid producers are having a tough time with these price levels.” The buyer said volumes may be reduced, or that some producers may choose to produce urea instead of melamine.
The third quarter is likely to see yet more tense negotiations, as demand traditionally slows during summer, and offtake usually peaks in the second quarter. While increases are expected, market participants said European pricing will depend on the strength of the economy.
Second-quarter prices rose on high raw material costs, which have reduced producers’ margins over the past year.
Concerned about the lack of profitability, producers had initially aimed to return second-quarter prices to fourth-quarter 2011 levels, when prices were at approximately €1,200/tonne ($1,579/tonne) free delivered (FD) northwest Europe (NWE).
Prices are now at €1,010-1,090/tonne FD NWE, although some sources said their second-quarter contracts had settled in the mid €900s/tonne FD NWE.
There was a clear acceptance by players across the melamine sector that the bottom had been reached in terms of pricing and that contract prices would need to increase to allow for a healthy, sustainable industry. However, weak demand and healthy supply saw prices settle with a small increase from the first quarter.
Poor macroeconomic conditions mean that there is reduced spending in the public and private sectors across much of Europe.
However, construction opportunities remain evident in eastern Europe, most notably in Ukraine, Romania, Turkey and Belarus, where sources said there is still a need to improve living standards. There are signs of economic growth in these countries with plans for the construction of roads and the building of stadiums, pools, hotels and sports facilities, another producer added.
“If there is one glimmer of hope,” one producer said, “the melamine market will react quickly if the economy recovers.”
($1 = €0.76)
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