OUTLOOK ’17: Europe melamine market solid but external factors could bring uncertainty

By Katherine Sale

LONDON (ICIS)–Demand in the European melamine market is expected to remain solid in 2017, but with imports expected to be lower for the first half of the year and an anti-dumping decision against China approaching, external factors are the areas of uncertainty for the year.

Demand was robust throughout 2016, with players across the market expecting levels to remain stable in 2017, with capacity utilisation at facilities already high.

Both buyers and sellers said that without any further investment in production it would not be possible to increase levels in Europe.

It is the strong demand levels that led melamine major Borealis to sign a memorandum of understanding to look into opportunities for melamine production in Algeria, with Asmidal.

The feasibility study for the project is currently underway, with a decision on the project expected this year.  

Demand looks set to remain strong this year, with the chemicals-intensive Eurozone construction sector in the eurozone posted an increase in activity of 0.8% in October month on month, according to Eurostat.

Melamine demand from Spain was particularly strong in 2016, with continued strength expected in 2017.

Despite a slow start to last year, demand in Russia picked up strongly in the second half 2016, resulting in Russian melamine producer Eurochem largely focusing its domestic market, with more volumes staying in the country.

Demand outside of Europe has increased, with some European producers seeing 10% growth from India, South Korea, Malaysia and Indonesia.

The increase in demand is largely linked to the emerging middle class in some regions, and greater investment in furniture and kitchens.

The US is also an area of interest. After a period of stagnation, demand has started to increase from the region.

Product from other areas is required to meet US demand, with Cornerstone being the sole melamine producer in the region with a capacity of 75,000 tonnes/year at its Waggaman plant.

Exports from Europe fell throughout 2016, with European producers focusing on domestic demand.

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The trend for imports was not as clear with imports rising for the first four months of the year, however fell year on year for the data available from August onwards.

The shift in material away from Europe came following the tightening of supply in China in the latter half of the year, which left buyers outside of Europe short of material.

With Chinese producers exporting between 20,000 – 25,000 tonnes of melamine each month, according to some players, this severely tightened supply in certain regions.

This was particularly noticeable in both Turkey and India, with prices in India almost doubling in November, before easing in the last month of the year.

However, requests from both countries remain high, with product for some producers outside of the regions being directed there.

Given the current demand level and rising prices in areas outside of Europe, combined with the weakened euro against the dollar exchange rate, imports in Europe are expected to be at a lower level for the first half of 2017.

Although negative for buyers in this regard, producers of end goods are currently benefiting from a more attractive export market, with opportunities here expected to continue.

There are no major maintenance turnarounds planned in Europe for the first half of the year. Despite this, producers see supply on the tighter side for the first six months of the year, linked to lower imports and low inventories after a period of good demand.

One producer said with urea prices remaining at a lower level profitability for sellers is high at present, especially considering the global level of demand.

Other possible factors that may impact the European melamine market include the upcoming decision on extending the anti-dumping tariff against Chinese product and general economic uncertainty.

The review by the European Commission was announced in May 2016 and is expected to take 12-15 months to complete.

If the tariff is lifted this would have an impact on global trade flows and is seen as the pivotal decision for the market next year.

Players are also concerned about the impact of the UK leaving the EU and the election of Donald Trump as US President.

However, at the start of the year strength and stability are the main messages for demand, with supply and factors outside of the region being the main area of discussion for the ongoing first-quarter contract negotiations.

Prices were stable in 2016, but with demand for European product high at the end of the year this spurred European producers to separately target price increases between €50-100/tonne.

At this stage the market is divided, with buyers seeing little justification for a high increase, with targets on the buying side between a rollover to a small double-digit increase.

2017 starts with some upward pricing pressure, good demand, European production running well, and players looking outside of the region for any factor that could tip the current market balance.

(*Chart based on December Eurostat data as of 16 December, Eurostat import/export data is subject to revision as more detailed information becomes available. EU figures comprise the aggregate of member states data published by Eurostat.)