This week, although the price of melamine in the market continues to decline, the internal dynamics of the moving average system have changed. On May 21st, the benchmark price of melamine in Shengyi Society was 6150.00 yuan/ton, a decrease of 10.55% compared to the beginning of this month (6875.00 yuan/ton). The continuous decline in prices has weakened market sentiment and created a strong atmosphere of risk aversion and wait-and-see.
Mean Square Shape
| Melamine |
In the early stages of the decline, the distance between the 10 day moving average (red line) and the 20 day moving average (blue line) is indeed rapidly increasing, that is, “negative expansion”, corresponding to the accelerated decline in the early stage. In the past two days (approximately between May 16th and 20th), the distance between these two moving averages has noticeably started to narrow (shrink), even showing signs of overlapping at the end of the chart. This is the core basis for judging the current market stage.
Based on the latest industry data from mid to late May, the current fundamentals of melamine can be summarized in one sentence: “high supply hanging at the top, weak demand dragging the bottom, and low cost bottoming out”.
Supply side: Since May, the capacity utilization rate of the melamine industry has been hovering between 60% and 63% (far above the breakeven line). Although some facilities in Sichuan, Xinjiang, and other regions have temporarily shut down recently, overall production has recovered quickly, and it is expected that the operating rate will slightly rise to around 62% in the latter half of the year.
Demand side: As the core downstream industries such as sheet metal, coatings, and furniture manufacturing, there is currently a general shortage of orders and low operating rates. Downstream consumers generally consume low-priced inventory in the early stages, and the procurement model is a typical “buy as you go” model, which is extremely picky about prices. Only when the price drops sharply will they dare to take a little bit, and it is impossible to form a centralized stocking wave.
Cost side: Raw material urea is declining: The core raw material of melamine is urea, and recently the urea market has been affected by weak domestic demand, resulting in a continued weak downward trend. As of May 21st, the benchmark price of urea in Shengyi Society was 1782.50 yuan/ton, a decrease of 4.93% compared to the beginning of this month (1875.00 yuan/ton).
When will the downward trend really stop?
Combining the technical aspect of spot trading (moving average adhesion/slowing down of decline) with the fundamental aspect (high supply and weak demand):
The current market is in a period of intense collision between “fundamental bottoming out” and “technical oversold”. Due to weak demand and a large supply of goods, it is difficult for prices to immediately undergo a V-shaped reversal and surge. But fortunately, the cost side has not collapsed, and the technical aspect has been severely oversold.
Conclusion and suggestion:
The market has entered the final stage of a ‘slowdown in decline’, and we suggest that you stop panic selling and stay on the sidelines. Pay close attention to the price and moving average changes in the next 2-3 trading days. Once there is a pattern of “moving average golden cross” or “price not breaking new lows”, consider buying on dips appropriately.
| http://www.lubonchem.com/ |