China's domestic melamine prices surge amid uncertain outlook

14 October 2016 05:39 Source:ICIS News

SINGAPORE (ICIS)--China’s domestic prices of melamine rose sharply this week as supply tightened following a recent spate of forced production cuts due to mandatory government inspections, and this will add on to the uncertainty over how prices will trend in the near term, market players said on Friday.

The sudden sharp increase in prices after the holidays was unexpected for many as Chinese producers have only restarted from recent shutdowns and tight supply conditions were seen as easing.

Spot prices had only recently fallen from $1,025/tonne FOB China on average in end August to $915/tonne FOB China in late September, according to ICIS data.

Chinese producers raised their offers after their holidays to $1,050/tonne FOB China on 10 September and were unwilling to accept prices below $1,030/tonne FOB China. 

Environmental inspections in the Shandong area have forced producers to reduce their operating rates, worsening the tight supply conditions that had plagued the market in the recent months, they said.

Average operating rates in China were at 55% as of 12 October.

China’s Shandong Shuntian shut its 100,000 tonnes/year melamine plant on 30 September and is expected to restart in 27 October while Luxi Chemical has also shut its melamine plant after the recent Golden Week holiday. The timeline for the restart of the Luxi Chemical plant is not immediately clear.

The increase in export offers follows higher domestic offers as well in the week.

In the domestic Chinese market, low pressure melamine cargoes were at yuan (CNY) 7,800-8,500/tonne EXW on Wednesday.

Regional buyers were surprised to receive such high offers in the week and were not keen to engage in negotiations as they had secured some quantities during the downtrend.

“Offers are too high so we don’t have any idea this week. We bought earlier at lower prices so we can still wait” said a southeast Asian buyer.

Buying indications from end-users were at around $950/tonne FOB China in the week.

“We would not consider offers at those levels because we are sufficiently covered, but if there are any buyers with need for melamine for their production, they would have to buy at the levels that producers are quoting this week” said a southeast Asian buyer.

Demand for their end-products have been healthy and there have no firm plans to reduce their run rates even with the raw material price increase.

Meanwhile, several key end-users said they were able still able to wait for around two weeks before they make purchases.

However it is tough to predict whether prices would rise or fall to their expected levels as prices have been volatile, they said.

“We would try to seek smaller quantities in the coming weeks if prices do not fall as much as expected, for now we will just wait and see,” said a major southeast Asian buyer.

Some others said that they would communicate and translate some these increases to the buyers of their products as well.

For Japanese origin material in the region, it remained limited on spot availability in the week.

“We received enquiries from some southeast Asian buyers, but we do not have spot materials to offer,” said a major Japanese producer.

Picture (top): Melamine is used in laminate flooring (WestEnd61/REX/Shutterstock)

Focus article by Daphne Ho

By Daphne Ho