Cost Support Struggles to Cope with Flat Demand—Melamine Prices Remain Stabilized at High Levels

December 16th, according to reports

Recently, the melamine market has remained “firmly stable” amid a backdrop of “high and fluctuating capacity utilization coupled with subdued demand.” Analysts currently believe that prices will likely remain at high levels, exhibiting a pattern of stability with some mild weakening rather than sustained upward trends. The core reason is that the contraction in supply and cost support are struggling to offset the sluggish downstream demand. As of December 16, the benchmark price for melamine stood at 5,675.00 CNY per ton, representing a 1.34% increase compared to the beginning of this month (5,600.00 CNY per ton).

Supply Side:

Recent core changes in market supply have been characterized by active contraction. The overall industry operating rate has decreased from 62.20% at the end of November to 60.80% at the beginning of December. This is mainly due to some companies scheduling winter maintenance and production reductions in certain regions due to environmental factors. Major producers, having executed previous orders well, currently face little inventory pressure, and there has been no significant accumulation of social inventory. However, it is important to recognize that by the end of 2025, the total industry capacity in China is expected to reach 2,600,000 tons, while the long-term capacity utilization rate remains below 70%. The massive excess capacity is fundamentally the key factor suppressing price increases.

Comprehensive Impact: The short-term contraction in supply has directly reduced the volume of goods available on the market, serving as the most immediate driving force behind the current prices’ ability to remain stubbornly high rather than decline.

Demand Side:

The state of the demand side is the core constraint that keeps the market “firm” but prevents it from “strengthening.” Approximately 60% of melamine consumption is directed toward the engineered wood panel industry, and its demand is deeply tied to the health of the real estate market. Currently, downstream factories are experiencing sluggish order volumes and low operating rates; their procurement of raw materials is primarily driven by immediate needs rather than large-scale restocking efforts, leaving them lacking the impetus for significant inventory accumulation. The current price level of melamine has already triggered noticeable resistance from downstream users. Downstream factories generally believe that prices have become detached from actual demand, so new orders have quickly dried up following the price hikes, creating a situation where “prices exist but there’s no market.” The international market performance has been lackluster, failing to provide additional support for China’s domestic market conditions.

Overall Impact: Weak demand fails to provide any positive support for price increases; instead, it acts as a clear price “ceiling,” significantly diminishing the positive effects from supply-side and cost-side factors.

Cost side:

The cost side provided the most fundamental support. The price of urea, a key raw material, has risen: Since December, China's urea prices have been steadily increasing, as urea is the core raw material for melamine production (approximately 3 tons of urea are required to produce 1 ton of melamine). As of December 16, the benchmark urea price stood at 1,715.00 CNY per ton, up 3.47% from the beginning of the month (1,657.50 CNY per ton).

The rise in urea prices has significantly increased the production costs of melamine from the source. This makes it impossible for Chinese manufacturers to drastically reduce prices below cost even when demand is poor, thus establishing a solid "bottom line" for market prices.

Industry Outlook:

It’s worth noting that the recent “strength” represents a short-term fluctuation within a long-term downward trend. The industry is experiencing severe “involution,” with capacity continuing to expand. As a result, the utilization rate of enterprises has dropped from 71% in 2024 to 69% from January to August 2025. Moreover, the core downstream sector remains highly tied to the real estate market, leading to sluggish demand. In the first eight months of 2025, average prices fell by 20% year-on-year, severely squeezing corporate profit margins. Therefore, the industry consensus is that it is imperative to “strictly control capacity” and seek a way out through technological innovation and the development of high-end downstream products—such as low-formaldehyde resins.

Overall, the short-term market is expected to maintain a high-level fluctuation pattern. If supply remains tight or costs continue to rise, prices may receive support; however, if resistance from downstream sectors intensifies or the operating rates of enterprises in China increase, prices may face pressure to correct.