Supply Contraction Supports Melamine Market Stability with Fluctuations in China

September 02, News

The melamine market, supported by tightened supply, has indeed shown a trend of stopping the decline and rebounding. As of September 2, the benchmark price of melamine was 5675.00 CNY/ton, an increase of 0.22% compared to the beginning of this month (5662.50 CNY/ton) in China.

I. Price Trends:

In August, the melamine price trend was full of twists and turns. In July, the melamine market in China showed mixed increases and decreases.

Early September: The market continued the weak trend from July, with prices under pressure.

Mid-month: A significant rebound was observed. This was mainly due to a sharp contraction in supply: Continuous high temperatures affected the main production areas in Sichuan and Anhui, leading to passive load reductions in facilities, with the overall industry load rate dropping to around 40% (data from mid-August). The tight supply led to persistently low market inventories, and some manufacturers adopted a strategy of controlling order quantities, which pushed prices up accordingly.

Late August to date: Market sentiment has become more cautious, and prices have entered a phase of stable consolidation. As some maintenance facilities restarted, the capacity utilization rate significantly recovered (as of August 28, the capacity utilization rate rose to 58.5%), and the increase in supply alleviated the previous tight situation. At the same time, there has been no strong recovery in demand, leading to a lack of sustained upward momentum in prices, which overall tend to stabilize.

II. Supply Side:

In August, the changes in the melamine market in China were mainly driven by fluctuations in the supply side. Mid-month, the industry's operating rate plummeted to 44.32% (the lowest level in the past three years), with daily production significantly decreasing by over 30%. This was the most critical factor driving the price to stop falling and start rising. Subsequently, as some maintenance facilities planned to restart, the capacity utilization rate recovered from its low point, and the support from the supply side for prices weakened.

III. Demand Side:

The demand side has not provided strong upward momentum for prices:

Domestic Demand Side: While the downstream sheet industry has seen a slight recovery in demand, it remains constrained by the sluggish real estate sector, resulting in limited overall recovery momentum.

In foreign trade: Export performance remained sluggish, with limited new orders. Although the cumulative export volume from January to May reached 263,100 tons, a slight year-on-year increase of 0.34%, adjustments in international tariff policies also weighed on export activities.

Downstream buyers in China mostly remain cautious, primarily purchasing based on demand.

IV. Cost Side:

Urea prices, the key raw material for melamine, weakened throughout August, following an overall downward trend. As of September 2, the benchmark urea price stood at 1,707.50 CNY per ton, down 0.29% from the beginning of the month (1,712.50 CNY per ton). This decline in urea prices has reduced cost support for melamine production.

Despite the decline in raw material prices, the rebound in melamine prices is limited, and the industry as a whole remains in a loss-making state. As of August 28, the production profit margin was -1.38%, which is a slight improvement from -1.40% the previous week, but it has not fundamentally improved. The operational pressure on companies remains significant.

V. Future Outlook

For the melamine market in China in September, it is expected to show a stable but slightly weak and fluctuating pattern.

Supply Side: The capacity utilization rate is expected to continue its modest recovery. If the start-up rate keeps improving, market supply will increase, potentially putting downward pressure on prices.

Demand Side: The traditional peak consumption season of "Golden September and Silver October" is the market's biggest expectation. If demand in downstream industries like sheet metal continues to ramp up as scheduled, it will become the key driver behind rising prices. Conversely, if demand recovery falls short of expectations, the market will struggle to escape its sluggish momentum.

Cost Side: Urea prices are expected to remain volatile within a narrow range, potentially resulting in a relatively neutral impact on the cost of melamine.

In summary, the melamine market in August achieved a reversal from decline to increase under the dominance of supply tightening beyond expectations. However, as supply gradually recovers and demand remains lackluster, the momentum for market growth has weakened, transitioning into a phase of stable consolidation. For September, whether the market can break out of the consolidation pattern largely depends on whether the traditional peak season of "Golden September and Silver October" will bring the anticipated increase in demand. If demand can be effectively released, prices may gain new upward momentum; if demand continues to be weak, the market will struggle to escape the trend of weak fluctuations.