Urea had a poor performance in July – will it rise in August?

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Urea had a poor performance in July – will it rise in August? Author/Source: China Fertilizer Network Date: 2019-07-31 Clicks: 41 As is well known, urea prices were quite low in the middle and late part of July. The standard export prices in Shandong’s two river regions dropped to 1850–1900 yuan per ton, while actual transaction prices were even lower at 1800 yuan per ton. In Linyi, the purchase price for urea fell to 1850–1860 yuan per ton. From the 26th to the 28th, some manufacturers in Shandong and Hebei saw their prices rise by 10–30 yuan per ton due to numerous orders pending shipment for export, but this upward trend came to an end. Manufacturers in the northwest region saw their prices drop by as much as 100 yuan per ton. By July 30th, manufacturers in Jiangsu, Anhui, and Hubei saw another decline of 20–30 yuan per ton. It can be said that July was a poor month for urea prices! 　　It is worth noting, however, that by the end of July, the decline in urea prices had slowed down; the prices of some urea manufacturers remained stable for over a week, and the purchase price of urea in Linyi also increased by 10–30 yuan per ton. Could it be that compound fertilizer companies are purchasing large quantities of urea? Is export still promising? Or will the supply decrease? Is it possible to have a rise in August? 　　A rise in August is possible, but it would be limited to a few small increases; a significant and sustained rise is unlikely. 　　Firstly, although there is domestic demand, it is not concentrated. In the industrial sector, by the end of June, compound fertilizer manufacturers began collecting payments for autumn fertilizers. In July, their production rates started to rise gradually; this was partly to avoid greater environmental regulations from September to early October, and partly because the demand for autumn fertilizers is indeed essential, so they tried their best to produce as many finished products as possible ； However, in autumn, fertilizers high in phosphorus and potassium still dominate the market. Coupled with the consistently high prices of urea, compound fertilizer manufacturers either use ammonium chloride and sulfuric acid as substitutes for urea when purchasing raw materials, or wait before using urea, or have already exhausted their capacity to absorb price increases for urea. As a result, their purchases help to drive only a slight rise in urea prices, and it is difficult for this to constitute a significant driving force for price increases. Recently, plywood mills have been facing significant environmental pressure. In some areas of Shandong Province, plywood mills have completely halted production for rectification. Following the explosion at a gasification plant in Henan on July 19, environmental pressures in Henan have also increased. Of course, as time goes by and these mills meet the requirements set by environmental and safety inspections, they are expected to increase their purchases of urea to some extent. The exact timing remains to be seen. Power plants can only maintain their usual purchasing pace, so the impact on urea prices remains minimal. 　　In the agricultural sector, starting in late August, agricultural distributors will gradually purchase fall fertilizers from south to north. Whether due to concerns over the impact of environmental regulations on urea production or considerations regarding export demand, a few distributors will make purchases in modest quantities as early as August. This will only provide slight upward pressure on urea prices; there won’t be any significant driving force behind price increases. 　　Secondly, exports are expected, but only in terms of volume rather than price. Recently, the offshore guiding price for China’s urea exports has fluctuated between low and high levels, reaching around 280 US dollars per ton. The price at which domestic urea manufacturers sell their product at ports is limited to 1,800 yuan per ton; in a few ports, the price is slightly higher, at 1,850 yuan per ton. As is customary, the domestic selling price of urea produced by manufacturers in our country is 50 yuan per ton or more higher than the export price. At present, although manufacturers with an advantage in exporting are supplying goods to ports at low prices or without setting any prices, and the volume of such shipments is large enough to cause congestion at some ports and even lead to suspensions of unloading operations, this pattern also applies to prices; however, the domestic selling price is merely a listed price, and there are few actual transactions, which are limited to customers with genuine needs. 　　Export volumes are promising, as evidenced by shipments to countries such as India and Australia. From January to June, China’s total urea exports amounted to 1.77 million tons, representing an increase of around 150% on a year-on-year basis ； There is no hope of favorable prices; since the bidding process ended on July 8, international urea prices have dropped to around $280 per ton. If India issues new bids after August 10, the prices are likely to be lower than those in this bidding round. These lower prices remain unfavorable for China’s urea industry, though the actual impact will depend on the volume of transactions ； In short, given that India has sufficient domestic inventories – for specific quantities, please refer to the member area on China Fertilizer Network – it remains uncertain whether India will conduct any tenders. Even if tenders do take place, the volume of purchases is not expected to be substantial. 　　Once again, the supply of urea in our country will most likely remain at a high level. Although prices dropped in July, with significant declines in some areas, the prices of most urea manufacturers remained above the cost level, allowing for decent profits. In the absence of pressure from environmental or safety inspections, the operating rate of urea production facilities stayed high; daily production has resumed to around 160,000 tons in recent days. Only a very small number of manufacturers will undergo maintenance work in August. Even taking into account the subsequent environmental and safety inspections conducted for purposes such as military parades, the daily urea production is still estimated to remain at 150,000 tons or even over 155,000 tons. This will likely help curb any potential rise in urea prices in August. 　　In short, urea prices have not fallen sharply, and it will be difficult for them to rise significantly in the future. Although there are some positive factors, none of them constitute substantial support. Our distributors need not wait endlessly for low prices; they can take appropriate actions. However, they should not be overly optimistic and assume that urea prices will rise continuously as they did starting in August of the previous two years. The so-called increase in urea prices in August is more likely to mean a slight stabilization or minor fluctuations in prices due to the demand for fertilizers in autumn. 　　 　　(Che Yanhong)