Urea prices drop – let things take their course for a while

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Urea Prices Drop; Let Things Take Their Course Author/Source: China Fertilizer Network Date: 2019-07-22 Clicks: 15 This week, urea prices in Sichuan saw a slight increase. At present, the ex-plant price for high-quality urea in that region has been adjusted to 1920 yuan per ton (the same unit is used throughout). Some industry insiders say that since downstream buyers believe the low prices earlier on have reached a bottom, and there is still demand in the local market, traders have started to make purchases. However, it is evident from market conditions that there is relatively little trading volume for new orders at current prices, and the transaction prices can still be negotiated to some extent depending on the volume of orders； Additionally, urea prices have been declining in various regions: currently, the mainstream ex-factory price of urea in Shandong is 1880–1900 yuan, while compound fertilizer manufacturers in Linyi pay 1900–1920 yuan per ton for urea. In Hebei, the mainstream ex-factory price of urea is 1860–1930 yuan, and in Henan it is 1860–1900 yuan. Prices in areas such as Lianghe in Shandong have dropped compared to earlier levels. In regions where prices are already low, such as Inner Mongolia, Shanxi, and Xinjiang, prices have also declined to varying degrees due to a reduction in local demand. Although there have been slight increases in urea prices in some areas, there are still signs of further declines ahead. This is evident in the following aspects: Firstly, the impact of labeling measures is not a fundamental solution; it merely provides temporary relief. The main driver of demand for urea in the domestic market recently has been the tender process in the Indian market, with a total winning bid amount of 1.69 million tons. Some Chinese companies are less inclined to export due to the extremely low prices; according to data from the international market, China is likely to export slightly over 600,000 tons. Given the production capacities of various domestic companies, this tender in India is not likely to bring significant benefits to the domestic market. As for prices, they present a dilemma for companies that decide to export, and there is also a possibility that the tender process in India might be canceled. Secondly, domestic market demand is weak. At present, the period of heavy fertilizer use in local markets across the country has come to an end. Even in some areas where there is still a demand for fertilizers, local traders tend to adopt a cautious approach, operating with low inventory levels or even no inventory at all when selling fertilizers. Moreover, the low-pricing policy adopted by compound fertilizer manufacturers helps to keep the prices of raw materials from rising too much. Additionally, due to the cautious attitude toward urea in the market and relatively low demand from downstream users, there is a large amount of fertilizer in circulation in the market. Finally, the production level of enterprises remains high. Although some enterprises are still shut down or operating at reduced capacity, the overall production rate of large-scale manufacturers remains at a relatively high level. Most of the enterprises that have halted production plan to resume operations in mid-to-late July. In order to avoid the risks associated with limited or suspended gas supply during winter, these enterprises are stepping up their production efforts to ensure they have sufficient supplies for future needs. According to data from China Fertilizer Network, the daily output of urea across the country remains above 150,000 tons, and there are signs of further increases in production as we move into the latter part of the month. In summary, it is estimated that although the peak production period for compound fertilizers in autumn is approaching as we enter August, given the current supply and demand situation in the domestic market, urea prices are likely to continue to decline. (Wu Wenchao)