OUTLOOK ’20: Asia melamine market to face supply glut and weak demand

SINGAPORE (ICIS)–A supply glut amid sluggish demand will weigh on the Asian melamine market in 2020.

Capacity growth to slow, reduced operating rates to be sustained

The melamine capacity in northeast Asia reached 2.2m tonnes/year.

China is the largest producer with a total capacity of more than 2m tonnes/year.

Investment in new melamine projects has become more cautious after China realized that the fast capacity expansion has led to pressure on prices and erosion of margins.

In 2019, melamine prices fell to a record low since the 2008 financial crisis, according to ICIS data.

The pace of capacity growth has slowed down, with only one confirmed 60,000 tonne/year unit from Shanxi Jinfeng Coal to start up in 2020.

“The outlook in 2020 is pessimistic. There are not many new units to come on stream as the prevailing supply is already too much, unless small units are shut down,” a major Chinese producer said.

Average operating rates of China’s melamine plants have fluctuated between 50% and 70% this year, as downstream demand has not been not strong enough to digest the huge capacity.

The reduced operating rates will be sustained in 2020 as demand growth is not expected to catch up with supply, sources said.

Furthermore, producers also do not have any incentive to increase operating rates due to negative margins.

Demand may not see significant improvement  

Downstream demand is not expected to see obvious improvement in 2020 amid the global economic downturn and ongoing US-China trade spat.

Most of melamine’s output is used in thermosetting resins for laminates, protective coatings, molding compounds, textile finishes and paper coatings.

A small fraction is consumed as melamine crystal or salts for flame retardant or moisture-resistant uses.

As a major exporter in Asia, China’s melamine exports will see a drop for the first time in 2019 after having risen since 2015, according to the ICIS supply and demand database.

This is due to falling import demand in other Asian countries amid the global economic slowdown.

China’s total annual exports are expected to be at around 300,000 tonnes in 2019, based on exports of around 25,000 tonnes per month.

Total exports in 2018 were at 400,508 tonnes, sources said.

China’s melamine exports were at 255,597 tonnes in the first ten months of the year, down 23% on a year-on-year basis, according to the ICIS Supply and Demand Database.

The trade war has hit hard on China’s exports of finished goods, which has eventually affected upstream consumption for products like melamine, sources said.

China’s falling exports speak volumes about the slowing global demand.

“If China and the US do not reach a deal, downstream demand may remain relatively weak,” a regional trader said.

“The market in 2020 seems still quite sluggish. We must tighten the belt for the long winter,” the trader added.

Focus article and interactive content by Judith Wang