Europe Q3 melamine contracts increase, recover lost margins

18 July 2012 23:13  [Source: ICIS news]

LONDON (ICIS)-- Third-quarter European melamine contract prices have risen by €60-70/tonne ($74-86/tonne) from the previous quarter to recover lost margins, sources said on Wednesday.

Prices have been assessed at €1,080-1,150/tonne FD (free delivered) NWE (northwest Europe).

Agreements for the third quarter have been concluded with hikes of €40-100/tonne, depending on starting point, location and source. However, buyers had aimed for a rollover from the second quarter and producers had initially targeted increases of €125-150/tonne.

Third-quarter melamine demand traditionally slows as players across Europe are away from business, on summer holidays, and buying interest this year has been lacklustre as global economic instability has sapped consumer confidence.

Buyers had resisted increases because of reduced demand, financial concerns, a lack of visibility, and as availability of local and imported volumes has largely been healthy.

“The target was €125-150/tonne from the suppliers, but for us it was clear it was not a realistic price increase,” one buyer said. “Our target was for a rollover. A €70/tonne increase is okay, but not more.”

Producers were determined to achieve price hikes this quarter, following the modest increase in the second quarter.

“There has to be a significant upward move in the melamine market,” one producer said. “We have very low margins. The price needs to go up.”

Another producer said: “Europe is the highest cost region to produce, but has the lowest price. We need further increases in the third quarter to try and get back to some semblance of a sustainable European supply base.”

Between the first quarter of 2011 and the same period this year, melamine contract prices had fallen by €650/tonne as demand softened because of poor macroeconomic conditions.

While melamine prices came down, the costs of raw materials urea, ammonia and natural gas remained firm or increased. Competitively priced imports also pushed prices down.

Demand is likely to remain stable at a low level for the second half of the year, although offtake in southern Europe is particularly weak, while eastern Europe has been more resistant to the macroeconomic downturn.

The melamine spot range is now €930-960/tonne FD NWE, compared with €915–950/tonne FD NWE in the second quarter.

($1 = €0.81)

By: Helena Strathearn
+44 208 652 3214

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