Low Levels Across the Entire Cycle Combined with Converging Moving Averages—The Turning Point for Melamine’s Price Decline Is Nearing

May 21 news

This week, although the price of melamine in the Chinese market continued to decline, changes have occurred in the internal dynamics of the moving average system. On May 21st, the benchmark price of melamine was 6,150.00 CNY/ton, a decrease of 10.55% from the beginning of the month (6,875.00 CNY/ton). The continuous drop in prices has weakened market sentiment, with a strong atmosphere of risk aversion and wait-and-see.

Moving Average Patterns

In the early stages of the decline, the distance between the 10-day moving average (red line) and the 20-day moving average (cyan line) indeed widened rapidly, which is referred to as "negative expansion," corresponding to the initial accelerated decline. In the last two days (around May 16-20), the distance between these two moving averages has clearly begun to narrow (decrease), and there are even signs of them overlapping at the end of the chart. This is the core basis for judging the current market phase in China.

Analysis Based on the Spot-Forward Parity Principle

Mean Difference Indicator (Core Signal): Currently, the 10-day moving average is below the 20-day moving average, but the gap between the two—known as the mean difference—is shifting from widening in the negative direction to narrowing in the negative direction. This suggests that the market has entered a “slowing-down phase of the decline.” Although bearish momentum still dominates, its strength is beginning to wane, and the market’s willingness to continue plunging is weakening.

Price Position Indicator: The current price is at “low” levels across all short-, medium-, and long-term timeframes. Combined with the “negative narrowing” signal from the moving averages, this indicates that the price has fallen to a region that is both technically and value-wise relatively reasonable, leaving limited room for further substantial declines.

Combining the latest industry data from mid to late May, the current fundamentals of melamine in China can be summarized in one sentence: "High supply looms overhead, weak demand drags at the bottom, and low costs provide a cushion."

Supply Side: Since May, the capacity utilization rate of the melamine industry in China has generally hovered between 60% and 63% (well above the break-even point). Although some facilities in Sichuan and Xinjiang have recently experienced brief shutdowns, overall production has recovered quickly, and it is expected that the operating rate will rebound slightly to around 62% by late May.

Demand Side: The downstream industries—such as board products, coatings, and furniture manufacturing—which serve as the core end-users—are currently experiencing widespread shortages of orders and low operational rates. Downstream companies are generally “eating up” their previously acquired low-priced inventories, adopting a typical “just-in-time” procurement model characterized by extreme price sensitivity. They only dare to place orders when prices have dropped significantly, making it impossible for them to collectively build up substantial inventories.

Cost Side: Raw material urea prices continue to decline: Urea is the core raw material for melamine, and recently, the urea market has been affected by weak domestic demand, leading to a sustained downward trend. As of May 21, the benchmark price of urea stood at 1,782.50 CNY per ton, down 4.93% from the beginning of this month (1,875.00 CNY per ton).

When Will the Decline Really Stop?

Combining the technical aspects of Xianhuotong (moving averages converging/delayed downward momentum) with the fundamental factors (high supply and weak demand):

The current market is in a period of intense collision between "fundamental bottoming out" and "technical overselling." Due to weak demand and an oversupply, prices are unlikely to immediately V-reverse and surge. However, the cost side has not collapsed, and technically, it is already severely oversold.

Conclusion and Recommendations:

The market has entered the final stage of "declining deceleration." It is recommended that you stop panic selling and maintain a wait-and-see attitude. Closely monitor the price and moving average changes over the next 2-3 trading days. Once a "golden cross" of the moving averages or a "price not breaking new lows" pattern appears, you may consider moderately buying on dips.