Urea prices are rising sharply – could this really be a positive sign?

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Urea prices are rising sharply – could this really be a positive sign? Author/Source: China Fertilizer Network Date: 2019-07-30 Clicks: 59 Recently, the prices of urea have started to rise in regions such as Shandong and the Two Rivers areas. Currently, the standard ex-factory price of urea in Shandong is 1860–1890 yuan per ton (the same unit applies below). In Linyi, compound fertilizer manufacturers are purchasing urea at 1880–1900 yuan per ton, while in Hebei the standard ex-factory price of urea is 1870–1900 yuan per ton. In Henan, the standard ex-factory price is 1820–1830 yuan per ton. Moreover, some companies in Sichuan have also begun to raise their prices again. Some traders in the downstream market are puzzled by this situation; the calls for price increases for urea keep mounting. Some dealers who had been waiting to see what would happen are now starting to take action. After discussing this issue with industry insiders, it was learned that these price increases are caused solely by additional export orders. Although there is still demand in agricultural markets in areas such as Shandong’s Lianghe region, this demand will last no longer than mid-August, and it is scattered in nature, so it cannot provide significant support for urea prices. There is still a possibility that prices will continue to fall in the future. 　　Firstly, the relatively high load on the urea market. Although some enterprises are still suspended or operating at reduced capacity, the overall production rate of large manufacturers remains at a relatively high level. Some of those that had halted production have already resumed operations. Companies in regions such as Xinjiang are even stepping up their production efforts to avoid the risks associated with limited or suspended gas supply during winter, in order to be prepared for any future emergencies. According to data from China Fertilizer Network, the daily actual production volume of urea across the country remains slightly below 160,000 tons. It is understood that the amount of urea ordered for export this time amounts to 20,000–30,000 tons per factory, and based on their current production capacity, the supply will last no more than a week. Therefore, this price increase is merely a temporary solution to the problem. 　　Secondly, domestic market demand is weak. At present, the period of high fertilizer usage 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 policies adopted by compound fertilizer manufacturers help 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 considerable amount of fertilizer in circulation in the market. 　　Finally, urea in the Xinjiang region is mostly exported in appropriate amounts at the beginning. At present, there is only a small amount of demand within the region; some local companies are gradually shifting their supply focus to markets outside the region. Due to relatively lower costs, the reference price for urea produced outside the region is between 1450 and 1500 yuan. If the order volume is large, there is still room for negotiation regarding the price. Based on the peak demand period within the region, it is expected that a large quantity of urea will reach the southwestern markets around early August, with prices potentially falling further in the future. 　　In summary, it is expected that although prices in some areas will rise slightly due to demand from exports, they are likely to drop further slightly as low-priced goods from regions such as Xinjiang begin to flood the market. 　　(Wu Wenchao)