The toughest times for melamine have arrived

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The toughest times for melamine have arrived. Author/Source: Sinochem New Network. Date: April 22, 2020. Clicks: 7. Overcapacity, restricted exports, accumulated inventory, and chaotic competition. Since the beginning of this year, the domestic market for melamine has continued to show a downward trend. According to online monitoring in the chemical industry, the current prevailing price for melamine is around 4,800 yuan per ton, a decrease of approximately 9.4% compared to the beginning of the year. In fact, the actual transaction prices are often low, and there are even cases where prices outside Xinjiang region approach those in the local area, which can be considered abnormal. 　　Industry experts say that, after enduring the severe challenges of 2019, China’s melamine industry continues to face issues such as overcapacity, declining exports, accumulated inventory, and fierce competitive conditions in the market. Coupled with the ongoing weakness in foreign markets, the most difficult period for this industry has arrived. 　　In 2019, although the growth rate of domestic melamine production slowed down and domestic consumption increased, export volumes dropped significantly. Coupled with rising pressures related to safety and environmental protection as well as increasing production costs, some companies faced a situation where their costs exceeded their prices, resulting in a relatively low level of operational activity in the industry. 　　According to statistics from the China Nitrogen Fertilizer Industry Association, by the end of 2019, the effective production capacity of melamine in China was 1.945 million tons per year. That year, aside from the new 50,000 tons per year production facility at Kuitun Jinjiang coming online, several projects that were originally planned for expansion were canceled, suspended, or delayed due to market conditions. In 2019, China’s melamine production was around 1.3 million tons, with a plant operation rate of approximately 64%. At present, the operating rate of the melamine industry is less than 60%; however, weak demand in downstream markets has led to difficulties for companies in selling their products, resulting in rising inventory levels. The imbalance between supply and demand in the market is evident, and negotiations are facing difficulties. 　　In terms of costs, urea prices remained high in the first half of 2019, but declined steadily in the second half, with an overall drop of over 13% for the whole year. Last year, the urea market performed weakly overall, failing to provide cost support for melamine. This year, although the price of urea during the spring plowing season has risen, it remains lower than at the same time last year, further weakening the cost support for melamine. 　　In terms of exports, according to customs statistics, China exported only 280,000 tons of melamine in 2019, a 30% decrease compared to the previous year. The average export price was 846 dollars, also down by 29%, resulting in a decline in both volume and price – a situation that is rare in recent years. The reasons for this are, on the one hand, the adverse impact of the international economic situation, which has led to a significant decline in demand from foreign downstream industries; on the other hand, new production facilities abroad have come online and some existing facilities have resumed normal operation, resulting in a clear reduction in external demand. This year, on March 17, the Ministry of Finance and the State Taxation Administration issued a statement stating that, starting from March 20, the export tax rebate rate for melamine products would be increased from 10% to 13%, in order to encourage manufacturing enterprises to expand their operations overseas. However, the recent spread of the COVID-19 pandemic abroad has posed concerns for China’s melamine export market. 　　On the demand side, the main end-use sectors for melamine are the paper impregnation industry and the wood processing industry; together, their demand accounts for about 60% of the total demand for melamine. In addition, other downstream industries include flame retardants, resins, coatings, and others. China is the world’s largest producer of engineered wood products. At present, China’s engineered wood industry is dominated by plywood, and the overall plywood sector in the country is suffering from overcapacity, with a clear surplus of supply relative to demand. 　　In 2019, affected by Sino-U.S. trade tensions, the export of products such as my** products was hindered, and the use of melamine in products like paint decreased. Domestic demand for melamine grew only slightly. With exports facing obstacles, supply and demand imbalances became prominent within the industry, leading to a sluggish market situation. 　　This year, due to the impact of the pandemic at home in the early stage, downstream panel manufacturers faced severe disruptions in operations or had to operate at reduced capacity. Although domestic production has gradually resumed recently, the pandemic is spreading abroad again, resulting in serious obstacles to exports and making it difficult to boost demand for melamine. 　　Industry experts say that given the current severe global pandemic and blocked export routes, the melamine industry can only embark on a path of healthy development by strengthening its internal capabilities, by phasing out outdated production capacities, ensuring market stability, establishing standards, and relying on innovation.