China melamine export prices hit record low; outlook mixed

18 April 2014 06:32 Source:ICIS News

Focus story by Judith Wang

Melamine donstream includes wood panels and adhesivesSINGAPORE (ICIS)--China’s melamine export prices fell below $1,000/tonne in mid-April because of supply glut and weak downstream demand, but the overall outlook is mixed as some expect further declines while others think prices will bottom out soon, industry sources said on Friday.

The export melamine prices closed at $950-980/tonne on an FOB (free on board) China basis in the week ended 16 April, according to ICIS data. The prices were last at below $1,000/tonne in 2007 when ICIS started to publish FOB China prices, according to the data.

“I never expected that melamine prices [to drop to] such low level…. In the past few years, inflation kept rising, but melamine prices fell to the lowest in seven or eight years,” a Chinese exporter said.

The supply glut and persistently weak downstream demand were attributed as key reasons that drag melamine prices to below the $1,000/tonne psychological mark, sources said.

In China, nameplate capacities are at a total of around 1.8m tonnes/year, against consumption of around 1m tonnes/year, which meant the average plant operating rate is at 50-60%, sources said.

“There are too many melamine plants in China, all small ones, and each one could not run at full capacity, because the supply exceeded the demand significantly,” a trader said.

The oversupply in China forced major producers to seek more exports to overseas market to cope with the poor local demand, sources said, adding that major exporters had no choice but to reduce prices to promote sales.

Spot offers were heard at $980-1,000/tonne FOB China, but most buyers were cautious about making purchases given the bearish sentiment.

Demand, on the other hand, failed to recover in April in China and other Asian countries, although March-April is typically the onset of a peak demand season because of slower global economic recovery and not so robust economic growth in China, sources said.

Melamine is mainly used for producing wood panels and adhesives.

“We have to slow down the procurement for feedstock melamine because our downstream orders are decreasing, and we do not see any obvious improvement from the demand side,” a downstream wood panel producer said.

Meanwhile, the recent falling urea prices and domestic prices also cast a shadow on the buying sentiment, sources said.

Looking forward, the outlook was mixed as some market participants said the melamine prices will continue to fall further given the weak demand.

 “I think melamine prices will not rebound in near term as I did not see any demand improvement from my wood panels sector,” a downstream end-user said.

On the other hand some market participant said melamine prices will bottom out soon as the prevailing prices are already below the production cost.

“The prevailing prices are already below the production cost, so I don’t think the producers are willing to sell at such lower numbers for longer time,” a separate trader said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By Judith Wang