Melamine Market Report for 2016

By Stefano Sassi, Commercial Director, EUROTECNICA Contractors and Engineers S.p.A

Melamine is a very important and valuable chemical compound. It is a key presence in everyone’s life. Laminates, floorings, medium density fiberboards, dinnerware and many other products all owe their hardness, flame-retardant, waterproofing and resistance to this chemical compound.

Melamine characteristics

Melamine is mainly used together with formaldehyde to produce melamine-formaldehyde (MF) resins, which are widely applied in laminated products. MF resins laminates exhibit a particularly strong resistance to heat, stain and wear and their usage in housing (remodeling and furniture) and construction (residential and non residential) represents 95% of the MF laminates sector.
Quality and consistency of the melamine are very important for the performance of the complex machinery used for the production of laminates.
Melamine is conveniently used in the manufacturing of flame-retardants because of the high nitrogen content (66% wt). In this fast growing application melamine is used as is, mixed with polyurethane foam reactants.
Melamine functions as a flame retardant in two ways when exposed to fire or intense heat: it decomposes to release nitrogen gas, which inhibits combustion and absorbs heat, which further slow combustion by cooling the material surface since its decomposition is endothermic. In several states of the US and in Europe the CAL 133 (California Technical Bulletin CAL 133 or TB 133) or equivalent has been adopted as legal fire standards of flame resistance in commercial furniture and this implies the increase of melamine content. Moreover, the implementation of stricter limits on formaldehyde emissions from composite wood products by the California Air Resources Board (CARB) and equivalent European and Japanese authorities will support a further consumption of melamine in the future.

No substitute

Melamine is a high value added chemical compound that, for the largest variety of applications, has no competition from other chemicals.
In the flame-retardants applications for instance, melamine is quickly eroding margins to other chemicals, thanks to the high nitrogen content of its molecule. This fact explains why flame-retardant end-uses are the fastest growing applications in the melamine industry.
Even more importantly, the laminates industry, which accounts for more than 50% of the total melamine consumption, relies on the melamine features for the superior performance in the veneer-based final products. For this reason melamine fears no threat of substitution from other chemicals.

Steady growth

Over the past 20 years global demand for melamine has grown by a rate of 5.5% averagely, showing an inexorable upward trend confirmed by the analysts on their 20-year span predictions. While a growth rate of about 5% may definitely be a prudent prediction when considering the melamine market from a global perspective, it is worth of note the double-digit growth rate of many Asian regions such as India, the Middle East and China.

Low entry barriers

Melamine industry is experiencing a thorough transformation. While in the past the melamine market was highly concentrated and the relevant production facilities located nearby the main end-users, namely in Western Europe, nowadays the trend is to locate the melamine plants in China where the consumption, the low feedstock costs and the presence of qualified technical staff increase the investment profitability.
Moreover the Western Europe, the US and Japan host obsolete and polluting melamine plants, no longer welcome by the local communities which push for their closures as it happened in Austria, France, Italy, Japan and the US.
Several plants have been shut-down in China because of pollution and more closures are waited in the next 5-7 years for the same reasons in Germany, China, Western Europe, Japan and the US.

Just a step away from
Coal syngas

Melamine is a high value-added chemical compound, produced by direct synthesis of a common fertilizer, urea.
A melamine plant is therefore just a step away from the coal syngas, an opportunity that facilitates both calculation and prediction of the profitability in the long term.
Up to a certain extent the melamine price is influenced by the offer/demand in a specific period. However, the feedstock cost plays its role when an investor is about to take a decision for go or no-go.
Presently the melamine average selling price has been 8-10 times the costs of urea feedstock.

Melamine market evolution

World demand was 1701 kt in 2014. Growth rate was 6.6% YoY between 2005 and 2014, 2.25 times the GDP growth since 2005. China dominated global melamine demand with 47% share in 2014, which however represents 21% only in terms high quality melamine.
China consumed 363 kt of high quality melamine in 2014. In China high quality melamine demand is expected to grow at a higher pace than low quality.
The melamine market is experiencing a thorough transformation process that initiated a decade ago. Many plants have been shut down and more are waited to follow shortly a similar fate, especially in Western Europe.
Further consolidation is especially in China which today has a high degree of fragmentation in both production and consumption.
In China high quality melamine, in particular Euromel?, is booming, and the gap between high quality (HQ) and low quality (LQ) remains high, otherwise LQ melamine producers won’t be able to sell any melamine.
LQ melamine producers will therefore suffer much lower profits. Those LQ located in Xinjiang will suffer losses because unable to sell profitably and competitively the by-products from melamine off-gas.
More closures of LQ producing facilities are likely in the short/medium term because of inefficiency and pollution.
Considering a long-term market growth (4.8%) for melamine, the world will need another 500 kt/a of melamine capacity by 2020 and 2.7 million ton by 2035.

Melamine prices history

Melamine is a high added value chemical compound. Its price evolution across the years hasn’t been necessarily following the evolution of its raw materials but the demand/offer logics.
In China, after quite a long time of stagnating prices at RMB5 400 /ton, Q4 2016 marked a phenomenal recovery setting the average Euromel? melamine price at RMB10 000 /ton.
Prices are expected to stay on the high side because of the enforcement of new environmental laws in China that are causing the closure of several plants in the country.
Environmental protection law are getting more and more strict in China so only the total zero pollution melamine technologies are fully in compliance.
As of today only Euromel? Melamine Process, applied in China at 10 producing sites (the likes of Henan XLX, Hubei Yihua and Zhong Yuan Da Hua) features Total Zero Pollution thus avoiding the producers to spend extra CAPEX and OPEX needed by other technologies.