In 2017, urea production was only 54.5 million tons; even without any exports, it was difficult to meet domestic demand

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In 2017, the output of urea was only 54.5 million tons; even without any exports, it was difficult to meet domestic demand. Original article published on March 22, 2017, by China Agri-Media, Agri-Market Report. On the afternoon of March 21, 2017, a meeting of key nitrogen fertilizer manufacturers was held in Beijing. Sales managers from ten major companies involved in the production and distribution of nitrogen fertilizers, including CNPC, CNOOC, China National Coal Group, Jinan Coal Group, Yangquan Coal Group, Yihua Group, Luxi Group, Boda Shi Ti, China National Agricultural Corporation, and Sinochem, attended the meeting. Wang Liqing, Secretary-General of the China Nitrogen Fertilizer Industry Association, and Gao Li, Deputy Secretary-General, both attended this meeting. The meeting discussed the current production and sales conditions of various companies, as well as the information gathered through visits to local markets. It also analyzed the international and domestic supply and demand situations during the spring planting season. Ultimately, five points of consensus were reached regarding the current and future market trends: First, due to factors such as late spring cold snaps in some areas, low grain prices, and adjustments in cropping patterns, farmers’ enthusiasm for purchasing fertilizers has declined, and the timing of their purchases has been delayed. However, there are already signs of activity in some markets, with further recovery expected in the near future ； Second, although 10 million mu of corn fields have been converted to crops such as soybeans, this is expected to result in a reduction of 80,000 tons of pure nitrogen in fertilizer use (equivalent to 174,000 tons of urea), yet the overall fertilizer demand in agriculture across the country remains relatively stable, with only a limited decline. In addition, industrial uses such as urea for vehicles and flue gas denitration in boilers will continue to grow, while the total consumption of nitrogen fertilizers in both industry and agriculture will remain at the same level as last year. Affected by factors such as the significant reduction in nitrogen fertilizer production last year, large price fluctuations, and a halved amount of inventory to be held for off-season use, domestic channel inventories have dropped sharply. Based on an analysis of China’s urea consumption patterns over the past 10 years, it is expected that China’s apparent urea consumption in 2017 will increase compared to last year, with the apparent consumption volume likely to exceed 55 million tons ； Third, the operating rate of domestic nitrogen fertilizer plants remained low in the first quarter of this year; from January to February, the average daily output of urea across the country was 145,500 tons, a decrease of about 52,500 tons compared to the previous year, representing a decline of 26.5%. In March, affected by factors such as falling prices and environmental inspections, the daily urea production across the country remained below 150,000 tons. Based on the current production rate, annual urea output will be only 54.5 million tons; even if China does not export urea, it will still only be sufficient to meet domestic demand ； Fourth, although the current price of urea has increased by about 300 yuan per ton compared to the same period last year, it remains on par with the price from that time after taking into account the rise in raw material costs. Affected by factors such as increasing environmental protection pressures, the good profitability of chemical products like synthetic ammonia and methanol, and high prices of raw materials such as coal, companies can only break even when producing urea, and a large number of enterprises still face losses ； Fifth, the second quarter is a critical period for applying base fertilizers during spring planting and top-dressing during summer in China. It is also the season when composite fertilizer manufacturers and wood panel manufacturers operate at their highest capacity, and it represents the peak period for nitrogen fertilizer sales in the country. The lower production rates in the early stage and the delayed start of market activity led to an increased likelihood of a concentrated market activation later on, with simultaneous increases in demand from both industrial and agricultural sectors; as a result, ensuring an adequate supply of nitrogen fertilizers became more challenging in the second quarter. Overall, the urea market is set to enter a peak period in the latter part of the year. The reduced supply, resulting from a continuous decline in production rates earlier on and the almost complete depletion of the limited inventory available in the channels, will inevitably come into conflict with the surge in market demand. To ensure a stable supply of nitrogen fertilizers and stable prices in the domestic market, three recommendations were made to various nitrogen fertilizer manufacturers at the meeting: First, they should actively carry out proper management of nitrogen fertilizer production, safety, and environmental protection, ensure compliance with emission standards, and maintain the steady operation of their facilities ； Second, nitrogen fertilizer manufacturers and distributors should strengthen communication and cooperation, keep track of market inventory levels and demand changes in a timely manner, to ensure that goods are delivered to the market promptly ； Third, prioritize supplying the domestic market; companies with goods in port should minimize exports and remain ready to supply the domestic market at any time.