Geopolitical and Cost Factors Drive Short-Term Strength in Melamine in China

March 4th, News

This week, the melamine market was influenced by the geopolitical events in the Strait of Hormuz and China's spring farming demand, leading to a rapid increase in prices. The market showed a pattern dominated by cost, with tight supply and demand, and high-level fluctuations, making it a strong performer in the chemical sector.

I. Market Performance

As of March 4, the benchmark price of melamine was 6150 CNY/ton, with a weekly price increase of 3.02%, and a cumulative increase of 4.05% over the past 5 days, reaching the high range for the year. Mainstream factories in China have raised their quotations by 50-350 CNY/ton. The spot market is tight, with factories having sufficient pending orders, and the transaction focus is steadily shifting upwards. Downstream industries such as board materials and adhesives are following up according to demand, with strong capacity to meet essential needs.

II. Core Driver

Passage through the Strait of Hormuz has been disrupted, restricting Iran's methanol exports. China relies on Middle Eastern supplies for 60% of its imported methanol, and the spot price of methanol has surged by more than 7% in a single day, directly driving up urea production costs. As a key raw material for melamine, urea’s factory prices in major producing regions have risen to between 1,800 and 1,870 CNY per ton, creating a cost transmission chain—from methanol to urea to melamine—and providing strong support for melamine prices. Meanwhile, rising crude oil prices and ocean freight costs are further pushing up the cost center across the entire chemical industry chain.

Supply and Demand Fundamentals Provide Support

1. Supply side: The industry's operating rate remains at 55%-60%. After the Spring Festival, some plant maintenance has not been fully restored, and the release of new production capacity is slow. The supply of spot goods in the market is limited, and manufacturers are becoming more reluctant to sell.

2. Demand side: After the holiday, the panel and mold plastic industries in China have fully resumed work. The preparation for spring plowing has driven the peak demand season for urea. Downstream restocking demand has been released, with rigid demand supporting the market, and there is no significant inventory accumulation pressure.

Cost and Sentiment Double Boost

Urea demand remains strong during the spring farming season in China, coupled with a geopolitical premium on methanol, leading to a continuous increase in the cost of melamine. The market sentiment is bullish, and traders are moderately stocking up, further driving prices upward, creating a positive cycle of "cost increase → price increase → transaction follow-up."

III. Market Risk

The market's upward trend is still constrained by multiple factors: The overcapacity situation of melamine in China remains unchanged, and the resumption of subsequent facilities and the release of new capacities will suppress price increases; downstream board demand is experiencing a moderate recovery, but high prices may trigger resistance; if the Strait of Hormuz resumes shipping, the decline in methanol prices will weaken cost support; at the same time, urea is constrained by supply guarantees and price limits, which indirectly restricts the upward space for melamine.

4. Trend Forecast

Short Term (Early to Mid-March): Prices will continue to fluctuate strongly at a high level, with a price range of 6,100–6,400 CNY/ton. The geopolitical premium remains intact, coupled with support from spring fertilizer demand and tight supply conditions, ensuring that the upward trend persists—but the pace of price increases is narrowing.

Mid-term (late March to April): Prices will gradually peak and then decline. As demand for spring farming subsides and urea prices weaken, coupled with a rebound in supply, cost support will wane, causing prices to revert to fundamentals and shifting the trading range downward to between 5,800 and 6,100 CNY per ton.