Focus article by Chris Barker
LONDON (ICIS)--As European Q3 melamine price negotiations loom ahead for most players, views are mixed on both market fundamentals and the influence of overseas events.
Chinese melamine prices trended steadily downwards earlier in the year, contributing to oversupply in overseas markets which was a major factor in the reduction in European prices during the Q2 negotiations.
However, many market participants now expect Chinese prices to bottom out as a result of producers becoming unwilling to further reduce their margins, with some anticipating that this effect will also help European producers to maintain their prices.
One producer said last week: “[The] bottom out of China price rally will help to maintain lost margins in Europe in Q3 negotiations.”
However, another buyer said last week that Chinese material is unlikely to be delivered to European markets, and suggested that the oversupply during the Q2 price negotiations was more related to quantities available from European producers.
Demand for melamine has increased during Q2, which is in line with expectations due to the spike in activity in downstream sectors such as the construction industry which occurs during this period.
A slightly stronger economy in southern Europe and Turkey is also contributing to a growth in demand. However, overall buying interest is considered mediocre or low compared to most previous years, although higher than in 2013.
One buyer said last week: “We think prices should go down further, especially coming up to the holiday season; especially in August we don’t expect higher demand [and] offered quantities are sufficient.”
One producer gave a similar assessment, saying on 28 May: “demand is far from being good and there are lots of options of supply which also affect the market. Generally nothing is good now.”
On May 21, a trader suggested that the world market for melamine is oversupplied overall, and that this is reducing overseas exports from Europe to some countries; however, Eurostat statistics show that Europe’s overall melamine exports increased year-on-year in February and March 2014.
Regarding the upcoming quarter, the trader added: “We will maybe see a fight for market share and people will go out of the market.”
It also noted that its customers are operating with a reduced inventory, which it considers a sign that they are expecting no price increase in the next quarter.
One producer, which is based in the Middle East, has already concluded its European Q3 negotiations at a lower price than for Q1 and Q2.
On Sunday it said that it agreed that Chinese prices have bottomed out, and added: “For melamine grade A availability [is] still less than demand because [there are] not many grade A producers in China.”
It also noted: “The price is certainly lower than Q1 and Q2 prices since Q3 is always the weakest quarter of the year in Europe.”
Most players are expected to begin market negotiations towards the end of June.
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