OUTLOOK ’18: Global melamine market shifts on Chinese environmental inspections

LONDON (ICIS)–Environmental inspections in China shifted global melamine trade flows throughout 2017 and for many players continue to be the main driver of the market going into 2018.

As inspections ramped up in China this year, production rates fell, with the penalties for breaching pollution levels increasing in severity.

China is a key exporter in the global melamine industry, and before the inspections regularly exported between 20,000-25,000 tonnes per month.

Supply tightened as domestic production rates fell, which resulted in exports being cut as producers focused on local customers.

This changed the global melamine dynamics as buyers, particularly in Turkey, South America and Asia, turned to other producers for relief.

Demand in Europe was high throughout the year, but as supply tightened outside of the region, this added to requests for producers.

Good demand and snug supply created upward pressure throughout 2017, with pricing increasing each quarter.

For next year, the Chinese environmental inspections is the major unknown, and has the biggest potential to change global dynamics.

“[The] Chinese situation again will be crucial in [the] supply balance situation,” said one European distributor.

Some players are expecting an increase in exports from China, which will help with the global supply and demand balance as the year continues.

Underlying demand in Europe is expected to be around 1-2%, approximately in line with GDP growth in the region, with most consumption in the construction sector.

Most melamine output is used in thermosetting resins for laminates, protective coatings, moulding compounds, textile finishes and paper coatings. A small fraction is consumed as melamine crystal or salts for flame retardant or moisture-resistant uses.

Globally melamine growth is expected at 4-5%, driven by the emerging middle classes, especially in Russia, Turkey and Asia.

Russian melamine demand has been strong throughout 2017, with the potential in the region highlighted by the investment announcement from Metafrax.

The Russian-based company announced it will be building a 40,000 tonne/year melamine plant, which will come onstream in 2020.

Demand from the wood-based panel industry has been buoyant this year, with tightness in the crude methyl di-p-phenylene isocyanate (MDI) market resulting in some buyers switching to melamine-based resins.

However, crude MDI supply in Europe is expected to improve in 2018, with increased volumes from the Sadara Chemical facility in Saudi Arabia.

Overall, growth is still expected from the panelling and laminate sectors, as well as an increase from the smaller flame-retardant applications.

Supply is expected to remain balanced-to-tight for at least the first quarter of the year, with demand traditionally rising sharply in January as buyers restock.

The OCI Melamine facility in Geleen, which has a total capacity of 150,000 tonnes/year, was running at a reduced rate for much of the fourth quarter.

The second largest European producer, Borealis, is preparing stocks for a lengthy maintenance stoppage in the second quarter of 2018. The producers will have an overhaul at its 50,000 tonne/year plant in Linz, Austria which will take approximately 10 weeks.

Supply is expected to stay snug in the second quarter, which is traditionally peak season for melamine consumption.

However, as the year continues the supply and demand balance is expected to improve in Europe, especially if exports from China rise.

The third-quarter tends to be one of planned maintenance in Europe, with annual stoppages taking place for the majority of producers at this time. Stocks are prepared for in advance before the turnarounds, however, this still reduces availability in the region.

Melamine prices move on supply and demand dynamics, as opposed to feedstock, with most producers being integrated.

While there have been production hiccups at times this year, there have been no force majeure declarations.

With demand expected to remain at a robust level, and imports being lower this year, any lengthy production outage is the main concern for buyers for 2018.

For now another year of healthy and sustained demand is expected, but with question marks over global supply, and a lack of clarity over the developing situation in China.