The melamine industry should be inline
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Since the beginning of this year, the price of melamine, a key raw material for its production, has remained at a high level, significantly increasing manufacturing costs. At the same time, the domestic market is facing severe oversupply, and the influence of international market fluctuations on local prices is growing. Industry experts, speaking at the recent Second China Melamine and Downstream Industrial Development Promotion Summit, emphasized that the domestic melamine industry should focus on boosting domestic sales and exports while strengthening collaboration among companies to find new growth opportunities.
Recently, cost pressures have continued to rise. In 2008, urea—the main raw material—remained expensive, with ex-factory prices still above 1,900 yuan per ton even after government-imposed price caps. This led to an approximate 300-yuan increase in melamine production costs compared to the previous year. On the energy front, major power companies in China have requested the State Council to adjust electricity tariffs due to coal price linkage, potentially raising rates by over 0.15 yuan per kWh. With rising inflation and the implementation of new labor laws, companies are now required to pay more in social insurance and face labor costs that are over 20% higher than before. Additionally, the country's tightening monetary policy is increasing financial pressure on new melamine projects.
Min Haibo, deputy general manager of Sichuan Meiqing Cyanamide Co., Ltd., pointed out that the first half of the year is typically a peak season for urea but a low season for melamine. Manufacturers must accept this reality and cannot expect a short-term drop in urea prices. He argued that, given current urea prices, it would be difficult for any domestic melamine plant—whether self-sufficient or not—to remain profitable.
From a supply and demand perspective, the imbalance between production and consumption is expected to worsen. Several new facilities are coming online, including Ukraine’s Petrochemical 30,000-ton plant, Fengxi and DSM’s joint venture, Gimhae’s 15,000-ton unit, and Deqilong’s 15,000-ton facility. Junhua Group is also expected to complete a 60,000-ton project by year-end. Many manufacturers are planning expansions, adding up to 220,000 tons annually, with another 400,000 tons under development.
Meanwhile, multinational corporations are making strategic moves, such as forming joint ventures or expanding sales in China, the Middle East, and the Black Sea region. For example, DSM and Fengxi Fertilizer recently announced a joint venture. These actions will further boost domestic production capacity. However, domestic demand is slowing down, partly due to government policies aimed at controlling housing prices, which have constrained the decorative materials sector. While melamine demand is expected to grow slightly this year, the overall volume will still rise.
Industry insiders believe that the Chinese melamine market is highly uncertain this year. Despite increased production capacity, supply remains unpredictable, and the market is likely to remain oversupplied. Market volatility is expected to increase due to fluctuating demand and seasonal variations. Experts suggest that the industry will become more reliant on the global market, with international demand changes having a greater impact on domestic prices.
On a positive note, international demand has been rising in 2008. High energy prices have made foreign melamine production costly, and some plants may reduce output or shut down. Major consumer markets in Europe, North America, and Southeast Asia continue to show strong demand, creating a gap in the global supply-demand balance. This situation is favorable for Chinese melamine producers, as international demand is expected to remain strong before new large-scale domestic facilities come online.
In response to these challenges, experts emphasize that boosting domestic sales and increasing exports are crucial for the industry's future. Strengthening R&D of downstream products and expanding melamine applications are key strategies. Examples include developing high-performance varieties, improving product quality, and exploring new applications like tableware, electronics, and foam plastics. Experts also stress the importance of better macro-control, industry management, and long-term planning to enhance the competitiveness of Chinese melamine enterprises on the global stage.