Melamine Is Serious Oversupply    

Due to the unduly capacity expansion, melamine is serious oversupply.   

Demand growth slowdown

With the startup of the 30 thousand t/a melamine project in Henan Junma Chemical Industry Group (CCR2006, No. 11), the 30 thousand t/a melamine project in Shanxi Fengxi Fertilizer Industry (Group) Ltd. (CCR2006, No. 30) and 30 thousand t/a in Sichuan Jinhua Chemical Co., Ltd. (CCR2007, No. 16), the production capacity of melamine in China has reached around 700 thousand t/a today. China had more than 80 melamine producers in 2006 and the output was around 400 thousand tons, accounting for around 29% of the world total.
   The demand for melamine in China was 300 thousand tons in 2006, an increase of 10% over 2005. Major consumption sectors include timber processing, decoration board, coatings, molded plastic, papermaking, textile assistant and leather sectors. The consumption in the timber processing sector accounts for 55% of the total. Around 25% of melamine made in China is for export. Major export destinations include Europe, America, Japan, Korea and Southeast Asia.
   The growth of demand for melamine in downstream sectors is more than 10%, but it is still far below the growth of capacity and there is serious oversupply in domestic market. The exported amount has become an important factor influencing the domestic market. With the completion of new melamine units in Europe in the fourth quarter of 2005, the imported amount in this region reduced drastically. As a result the exported amount of melamine in China in the first half of 2006 was much lower than the same period of 2005. The price in the domestic market dropped from RMB8 700 per ton at the beginning of 2006 to RMB8 300 per ton in October 2006. It was because of the overhaul made in some melamine units in foreign countries after August 2006 that the exported amount of melamine in China started to increase.
   The construction and decoration material sector in China has maintained a relatively high growth in recent years. The demand for melamine in reinforced composite floorings, in particular, has increased considerably. The rapid development of the new construction wood-form sector has also led to a consumption increase of melamine. According to the analysis made to a series of macro control policies recently issued by the government, however, the decoration material market will inevitably be faced with challenges in the next 2-3 years. Besides, due to the insufficient supply of forest resources caused by the unduly rapid development of the artificial board sector, many artificial board and wood-form producers have a low operating rate. The demand growth of melamine in downstream sectors will therefore slow down in the next few years.

Competition will be fiercer

The melamine sector requires a large investment scale. With the impact from the price rise of crude oil and natural gas and the increasing expenses of environmental protection, the cost of the melamine sector is increasing constantly. Due to capacity expansion, the competition between producers is aggravated, the product price is going down and the economic performance of producers is well below the expection.
   In spite of oversupply in the melamine market, due to lack of market information or other reasons some enterprises still have great enthusiasm in making investments in melamine projects. CNOOC and DSM of the Netherlands have decided to launch a 120 thousand t/a melamine project in Hainan province. The project will be completed and go on stream at the beginning of 2008. (CCR2005, No. 13) The 100 thousand t/a melamine project in Meifeng Cyanamid Co., Ltd. started construction in November 2005. (CCR2006, No. 1) It is expected that the capacity of melamine in China will be more than 1.0 million t/a in 2010.
   With the completion of new and expansion melamine units both at home and abroad, the competition between domestic producers will become fiercer. As small producers with a capacity of below 10 thousand t/a have weak delivery ability, poor product quality stability and insufficient long-term marketing strategy, they will gradually phase out of the picture. The advantage of some large melamine producers such as Shandong Haihua Co., Ltd., Zhongyuan Dahua Group Co., Ltd. and Sichuan Chuanhua Co., Ltd. will become more prominent.

Major Melamine Producers in China
           in 2007        (thousand t/a)
Producer                                      Capacity
Shandong Haihua Co.                               85
Henan Zhongyuan Dahua Group Co.                  60
Sichuan Chuanhua Co.                              60
Henan Junma Chemical Industry Group               30
Shanxi Fengxi Fertilizer Industry (Group) Ltd.    30
Sichuan Jinhua Chemical Co.                       30
Tianjin Kaiwei International Chemical Group       25
Fujian Sanming Huamao Chemical Co.                14
Xinjiang Urumqi Petrochemical Co.                 12
Source: CNCIC