Urea: Low production levels yet prices falling – could it become a case that’s impossible to revive?

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Author/Source: China Fertilizer Network. Whether it is traders assessing the risks associated with current prices or manufacturers engaging in price competition, the domestic urea market remains in a downturn – slow sales, few transactions, and falling prices characterize the difficult situation faced by urea at present； The beginning of 2019 was not promising, but rather \"dark\"” ； Manufacturers had hoped that prolonged low operation levels could help alleviate the weak market for urea, but the news released earlier by the Nitrogen Association, stating that gas supply for fertilizer production was expected to be restored starting in late January, seems to be putting an end to these hopes among industry insiders. At present, urea manufacturers are operating at reduced capacity due to environmental regulations or gas supply restrictions; however, this has become a factor that favors the development of the urea market. As a result, it fails to inspire enthusiasm among urea producers. The weak demand is causing urea prices to keep falling, and it seems that the urea market has become unable to recover By the beginning of 2019, there was no improvement in the urea market; prices continued to decline slowly. In regions such as Shanxi, the reference price for low-quality urea at the factory level dropped to 1730–1750 yuan per ton. In many markets, there was a supply surplus despite high prices, leaving dealers in a helpless situation and forcing them to adopt a more cautious approach ； Since the beginning of 2019, the domestic urea market has continued to show a downward trend at low levels. In some regions such as Shandong, the reference price for urea at the factory gate is around 1890–1900 yuan per ton, while in Anhui it is around 1940–1960 yuan per ton. In Guizhou, the price of urea imported from other provinces is around 2210–2300 yuan per ton. In Yunnan, the wholesale price of urea in the market is as high as 2200–2350 yuan per ton. However, the domestic urea market features a situation where there is a price but no actual market demand. The main focus in the market is what will happen to urea prices going forward Positive signs are “beginning to appear”. The biggest positive factor for the urea market is, as is well known, the low level of production activity. Urea manufacturers in the southwest, Inner Mongolia and other regions are reducing production or continuing to shut down due to limited natural gas supplies, with no plans to resume operations in the first half of the month ； Due to environmental inspections and temporary environmental warnings, some urea manufacturers are forced to shut down their production facilities. These two factors mean that such manufacturers can only operate at a reduced capacity; however, the overall favorable conditions give them some confidence to maintain higher prices ； Finally, as the Spring Festival holiday approaches, some downstream enterprises are stockpiling appropriate amounts of raw materials. Considering the limitations or disruptions in transportation, as well as the frequent occurrence of low prices in certain areas, these downstream companies are eager to take advantage of the situation by purchasing goods at lower prices, and they regularly order appropriate quantities of urea. Negative factors dominate the urea market. Firstly, the supply of urea is likely to increase in mid-to-late January, mainly due to the gradual resumption of production by some urea manufacturers that operate using gas as a raw material; a few large urea producers that were under maintenance also have plans to resume production ； Secondly, with the Spring Festival approaching, most companies will make every effort to ensure maximum shipments of liquid ammonia and maintain low inventory levels; as a result, their production focus will shift to producing more urea and using less liquid ammonia ； Once again, it is the off-season for agricultural demand; in order to reduce operational risks, and due to the tendency to buy when prices are rising rather than falling, large traders purchase urea in batches, or their willingness to purchase is low ； Finally, demand for urea in the industrial sector is limited. According to statistics from China Fertilizer Network, the overall operational rate of large compound fertilizer manufacturers is around 35.57%. Given the high prices of urea available in stock, sales of finished products are slow; as a result, there is hesitation in purchasing urea at present, with limited purchase volumes. Alternatively, some compound fertilizer manufacturers prefer to use cheaper nitrogen fertilizers such as ammonium chloride, which offer a guaranteed price, as alternative raw materials, as this reduces costs and associated risks. Overall, the urea market is supported by normally low production levels, but there are still significant uncertainties regarding production volumes ； Demand is the key factor driving changes in the urea market. Considering various factors such as the shipping pressures on urea manufacturers, their attitude toward shipments before holidays, transportation constraints, and weak demand from end-users, it is expected that the urea market will remain in a downturn in the short term. Low production levels will not be able to boost the entire urea market, forcing manufacturers to sell at lower prices.