With such market conditions, why is the production of urea increasing again and again?

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With such market conditions, why is the production of urea increasing again and again? Author/Source: China Fertilizer Network Date: 2019-02-25 Clicks: 6 After the Lantern Festival, the price of urea in the market has gradually declined. Currently, the standard ex-factory price of urea in Shandong is 1850–1860 yuan per ton (the same unit applies thereafter). The orders placed earlier in the market have been largely fulfilled, and although demand in local markets has started to emerge, it remains limited to occasional purchases only ； In Hebei, the price range is 1,830–1,850 yuan; premium prices in large factories continue to decline, while new orders placed by companies are generally modest in volume ； In Henan, the price is 1,850–1,860 yuan; scattered agricultural orders in the surrounding areas have already begun to appear, and the price at which enterprises sell their products at the lower end has dropped to 1,780 yuan ； In Shanxi, the price is 1,750 yuan. The orders that were to be shipped during the festival from factories have basically been fulfilled, and in order to reduce sales pressure, companies have slightly lowered their prices. Urea prices in the main production areas have all seen declines to varying degrees, but overall production levels remain relatively high. Large urea manufacturers in regions such as Shandong and the Two Rivers areas are operating at high capacity; in Shanxi province, the overall production rate for urea has even risen above 70%. According to statistics from China Fertilizer Network, the country’s daily urea production volume has now reached 147,000 tons. Some of the companies that had suspended production plan to resume operations by mid-March, and production rates may continue to increase in the future. However, some industry insiders wonder why, despite falling prices, the production rate of urea is actually rising instead of falling Based on my understanding and insights from the industry, the key points are as follows: First of all, there is still demand in the market. Before the Spring Festival, due to the generally pessimistic attitude of downstream users toward the fertilizer market, the volume of purchases of urea and compound fertilizers was not high, which directly or indirectly affected the turnover in the urea market. After the Lantern Festival, although urea prices are currently falling, demand has not yet fully recovered. According to distributors, the actual amount of urea in their possession is less than 60% of what is needed, and there will still be a certain amount of supply added in the future ； As for compound fertilizers, production activity was low in the early stages, with the overall average production rate rarely exceeding 40%. Once the agricultural demand market starts to pick up, the demand for urea in the production of compound fertilizers will gradually increase ； Therefore, even though urea prices have dropped due to supply issues at present, demand is still decent in the future, and urea manufacturers are still planning to increase production. 　　Secondly, companies are still able to maintain relative profits at the current price levels. Based on the current overall costs, urea manufacturers can still achieve a certain level of profit from their current selling prices; in some areas, the gross profit of these manufacturers even exceeds 200 yuan. Although an increase in urea supply may lead to a slight drop in prices, rising production levels will also result in a corresponding decrease in the overall costs for these manufacturers. To maintain their market share, some of them may sell urea at prices close to or even below their cost. At present, the urea market has not reached the point where price wars occur, so even in cases of temporary oversupply, the overall production level of urea continues to rise gradually. 　　In summary, the likelihood of an ongoing increase in overall production levels in the near term is relatively high. As a result of this rising production, urea prices may face further declines. However, there is still potential demand, so it is expected that the drop in urea prices will be modest in the short term.