Melamine: Limited room for a rebound from the bottom

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Melamine: Limited room for a rebound from bottom levels. Author/Source: Sinochem New Network. Date: July 30, 2019. Clicks: 65. Since late June, the melamine market has shown a continuous upward trend, with the most significant increases occurring in the first half of July. The prevailing transaction prices ranged from 5,500 to 5,700 yuan per ton, while higher-end prices were between 5,800 and 5,900 yuan per ton, representing an increase of 300 to 400 yuan compared to the beginning of July. However, industry experts analyze that although the melamine market is showing some improvement at present, it has not yet emerged from its difficulties; there is limited room for price increases in the future, and prices will remain low. 　　Price rebound from oversold levels Wen Yuekun, head of the marketing department at Hunan Haibo Chemical Co., Ltd., said that the rise in melamine prices this time can largely be regarded as a rebound resulting from oversold conditions. The melamine market has performed poorly this year; there was only one significant upward trend at the beginning of April. However, the ex-factory price rose to at most 6,300–6,400 yuan, whereas in previous years the prices were generally above 7,000 yuan. Thereafter, the market experienced another round of declines; by mid-June, the ex-factory prices for most enterprises had dropped to 5,200–5,400 yuan, while in Xinjiang they fell to 4,600–4,700 yuan, reaching new lows in many years. 　　Melamine is a downstream product of urea, and urea prices have not been low this year; the ex-factory prices in the first half of the year were generally above 1,900 yuan. Based on the price trends from previous years, the price of melamine this year should be above 7,500 yuan, yet the actual price fails to even reach 6,000 yuan. “The price of melamine has dropped excessively, leading to a demand for a return to its proper value, which is the main reason for the recent price increase. ”Wen Yuekun said. 　　However, after late July, urea prices began to fall, which may make it difficult to provide cost support for the melamine market. 　　“Currently, the operating rate of urea manufacturers is around 70%, with an average daily production nationwide of 157,000 tons, which is about 12,000 tons higher than the same period last year. Although India is issuing tenders, our country can export over 600,000 tons of urea; however, this will only help alleviate domestic sales pressure in the short term. It is highly likely that the prevailing ex-plant price of urea will fall below 1,800 yuan in the future. What’s important now is to see whether it’s possible to maintain a price level of 1,750 yuan. ”Wen Yuekun analyzed. 　　Decreasing utilization rates Due to the excessively low price of melamine, most manufacturers are operating at a loss; those that purchase urea externally suffer even greater losses. As a result, companies are increasingly inclined to limit production in order to maintain prices and to carry out maintenance work on a rotational basis. 　　It is understood that starting in late June, the production of melamine declined significantly. In mid-June, the national daily production of melamine was around 4,000 tons, it dropped to about 3,200 tons in late June, and further fell to 3,000 tons in early July; the operating rate of enterprises declined from 65% to 45%–50%. 　　“Following a significant drop in enterprise operating rates, the shipping and inventory pressures on most manufacturers eased, the market activity gradually increased, and downstream customers as well as distributors showed greater willingness to place orders; supply became slightly tight in some areas, leading to a strong rise in melamine prices. ”Wen Yuekun said. 　　However, the operating rate of the melamine industry has seen a rebound recently. According to JLCC’s monitoring, in the fourth week of July, the average operating rate of domestic melamine manufacturers was 53.9%, up 4.6% from the previous week. Among them, the Sichuan region has the fastest recovery rate, increasing by 19.7% compared to the previous week, with its current operation rate reaching 78.8%. In the later period, enterprises in Shanxi, Xinjiang and other regions also have plans to increase their production capacity, so the operating rate of melamine production is likely to rise further. Therefore, with an increase in market supply, it is difficult to provide support for melamine. 　　The market is expected to remain at low levels in the future. Hu Jun, general manager of Guangdong Hongwei Chemical Co., Ltd., believes that in addition to negative factors such as falling raw material prices and rising production rates, weak demand from downstream industries along with poor export performance will also prevent an increase in melamine prices. 　　From the demand side, the main downstream industry for melamine is wood-based panels. After years of structural adjustments, panel production has declined in some areas this year, leading to a reduced demand for melamine as well. According to statistics, from January to May this year, Guangdong Province produced 1.081 million cubic meters of plywood, a decrease of 4.5% compared to the previous year; it produced 1.239 million cubic meters of medium-high density fiberboard, a 5% decline; and 756,800 cubic meters of particleboard, a 26.6% drop. 　　Furthermore, the export market for melamine is also not optimistic. According to data released by the customs, in the first half of the year, China exported a total of 158,000 tons of melamine, compared with 206,000 tons in the same period last year, representing a decline of 23.1%. Not only have export volumes declined, but export prices are also falling. In the first half of the year, the average export price of melamine in China was 930 US dollars, compared to 1,217.7 US dollars in the same period last year, representing a year-on-year decline of 23.6%. 　　“Currently, the melamine market is showing weak trends, and it is expected that there will be little room for price increases in the future; the 6,000 yuan level will pose strong resistance. ”Hu Jun said.