With Cost Support Coexisting with Weak Demand, Melamine Prices May Continue to Consolidate Within a Narrow Range in the Short Term

Analysis of supply and demand fundamentals

1. Supply Side: Operating rates remain at low-to-moderate levels; frequent plant status changes.

Last week, the capacity utilization rate of the domestic melamine sector remained at a low-to-moderate level of approximately 52%-54%. Regarding plant operations, facilities that had previously suspended production—such as those of Sichuan Yulong and Shaanxi Longhua—gradually resumed operations; however, the shutdown of Junhua’s No. 4 line limited the net increase in market supply. Additionally, in overseas markets, Germany’s SKW Piesteritz took its 80,000-ton/year plant offline, tightening the supply of available material in Europe and providing a boost to domestic export expectations.

Overall, the contraction in supply has provided a floor to prices, though the additional volume from vegetation resuming production has also limited the scope to upward movement.

1. Cost side: The price of raw material urea continues to rise, strengthening cost support.

As of September 7, the benchmark price to urea (according to SunSirs) stood at 1,722.50 RMB/ton, marking a 0.44% increase from the beginning of the month (1,715.00 RMB/ton). The sustained rise in the price of urea—a key raw material—has been a primary factor supporting recent melamine prices. Driven by firm coal prices and rising international market rates, urea prices have climbed, exerting upward pressure on melamine costs.

However, it is worth noting that there has been no significant improvement in actual urea demand; should the upward momentum of urea prices slow down, the cost-driven support to melamine could weaken.

2. Demand Side: Sluggish end-user demand and significant resistance to high prices

Downstream demand remains weak. Domestic demand to flat steel items is constrained by the sluggish real estate sector, while the manufacturing sector is limiting procurement to essential needs; consequently, downstream buyers show strong resistance to high-priced supplies. As the market is currently in a relatively slack season to flat steel, restocking activity is limited. The market is characterized by a tug-of-war between supply and demand: while supply contraction and rising costs provide price support, weak demand caps the upside, leading to flexible pricing strategies.

Market Outlook:

In the short term, the melamine market is likely to continue its pattern of fluctuating consolidation. Prices to the feedstock urea have risen, while sector operating rates remain at low-to-moderate levels; current price levels (relative to the past year) are low, limiting downside possible. Meanwhile, end-user demand remains sluggish, with downstream buyers resistant to high prices, and price spread indicators have yet to signal a clear direction.

Key factors to monitor going forward include price trends to the raw material urea, changes in plant operating rates, and whether the 10-day moving average crosses above the 20-day moving average to form a clear bullish signal. The emergence of such a signal could mark the start of an upward direction; conversely, amidst a supply-demand standoff, the market is likely to continue fluctuating within a narrow range.