Melamine buyer says rollover most likely outcome in Q1 contracts

12 December 2013 11:58 Source:ICIS News

LONDON (ICIS)--Following indications from two European melamine producers this week that they will be targeting contract price increases in the first quarter, one buyer said on Thursday that the most likely outcome is a rollover.

“Demand is not very good in our industry, as some producers have already stopped production and many others will do this for at least three weeks over the new year – week 51, 52, and 1; and January is traditionally quite a weak month.”

The buyer said there had been no problems in obtaining spot material in the fourth quarter so far.

“At the moment, I would say a rollover is the most likely scenario.”

It remains too early for clear price indications for first-quarter melamine contracts in Europe, but initial discussions are likely to get underway next week, with negotiations expected to conclude in January.

“We will try to go for an increase in Q1,” a producer said this week, adding that current market dynamics do not justify a large increase.

“We have had a gradual erosion of prices in the fourth quarter, and recovering that is always an aim we have. The balance in the market is such that there is some room to go for a price increase, but no lower prices.”

Melamine demand in Europe is expected to grow modestly in 2014.

“GDP is, to a large extent, a driver for melamine growth, for example with the wood-based panel industry going into the furniture sector. If you take estimates of 0-2% GDP growth in Europe in 2014 as an indicator, there should be some growth in melamine. It will be modest, but at least there is no decline in demand.”

Another producer said: “[Q1] price decreases will definitely not happen.”

Demand is largely expected to remain in line with that seen during the fourth quarter. Inventory levels are low to balanced, depending on source, and exports are understood to be at a healthy volume, with the majority of material going to the US and Asia - where supply in China is limited.

The second producer said energy costs are high, and as melamine prices fell during 2013, margins are being squeezed. Both suppliers are seeking to recover margin in the first quarter.

Fourth-quarter melamine contract prices in Europe fell from the third quarter to €1,330-1,375/tonne ($1,822-1,884/tonne) FD (free delivered) NWE (northwest Europe).

Follow me on Twitter

($1 = €0.73)

By Helena Strathearn