Recently, the melamine market has shown a “firm” pattern where the supply side strongly supports prices, while the demand side restricts its upward potential. As of December 8th, the benchmark price of melamine in Shengyi Society was 5637.50 yuan/ton, an increase of 0.67% compared to the beginning of this month (5600.00 yuan/ton).
Behind the ‘firm operation’ is a game of multiple factors such as supply and demand and cost:
| Melamine |
Supply side:
The supply has indeed been shrinking recently. The centralized parking of the equipment resulted in a decrease in the overall capacity utilization rate of the industry from 62.20% at the end of November to 60.80%, leading to a reduction in market supply. At the same time, some production enterprises have sufficient pending orders and low inventory, which gives them the confidence to raise prices and push up quotes.
Demand side:
The overall performance is mediocre. The main industries such as downstream artificial boards have not seen a fundamental improvement in demand due to the impact of real estate. As prices rise, downstream resistance to high priced goods becomes apparent, leading to a decrease in new orders for production enterprises, which is the fundamental reason for the unsustainable price increase.
Cost side:
The price of raw material urea showed an upward trend in early December. As of December 8th, the benchmark price of urea in Shengyi Society was 1717.50 yuan/ton, an increase of 3.62% compared to the beginning of this month (1657.50 yuan/ton). Provided rigid cost support for the price of melamine.
Short term market outlook
Overall, the short-term market direction will depend on the game between the following two aspects:
Upward possibility: If the raw material urea market continues to improve and enterprises continue to maintain low inventory and strong willingness to raise prices, there is an expectation that market prices (especially low-end prices) will continue to rise.
Downward pressure: Due to the short-term supply side factors driving the current rise, the demand side has not provided a solid foundation. Once supply is restored or downstream resistance intensifies, the driving force for prices to continue rising will significantly weaken, and the market may fall into a high-level stalemate or even a narrow correction.
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