Will the suspension of exports be the final straw that overwhelms urea?

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Will the suspension of exports be the final straw that pushes urea prices even lower? Author/Source: China Fertilizer Network Date: 2019-08-12 Clicks: 2 Recently, urea prices have been on the decline; prices in areas such as Shandong’s Lianghe region have dropped slightly. In Xinjiang, due to a lack of demand, prices have started to fall sharply. Currently, the average ex-factory price of urea in Shandong is 1820–1860 yuan per ton. In Linyi, compound fertilizer manufacturers are buying urea at 1840 yuan per ton, while lower-quality urea is sold at around 1770 yuan per ton. In Hebei, the average ex-factory price of urea is 1850–1900 yuan, though high-end prices hardly see any sales. In Henan, the average ex-factory price of urea is 1800–1810 yuan, with actual transaction prices dropping below 1800 yuan. Recently, prices in Xinjiang have fallen rapidly; local urea prices have dropped to 1450–1650 yuan, while prices for urea intended for export have fallen to around 1350 yuan. According to local companies, prices are likely to continue falling in the future. As the shipping date in India on August 16 approaches, some domestic industry insiders are quite pessimistic about the future market for urea. They believe that once this supply for export is completed, it will be the final factor that drives prices down in the domestic market. Although most industry insiders express concerns about the future price trend of urea and think that whether India conducts further tenders or not will also affect domestic prices, the underlying reason for the current weakness in urea prices is due to a variety of factors. The main ones are as follows: First, domestic companies have been holding their prices high for a long time. Currently, the overall price of urea is higher than it was during the same period last year. Based on rough calculations using the costs of coal and natural gas in China, most factories still enjoy a certain level of profit as long as production remains at normal levels. However, due to weak demand recently, and in order to reduce their own pressures along with the high cost structure, there is a high likelihood that a price war will break out in the urea market. To gauge the willingness of downstream buyers to purchase their products, companies can only make gradual concessions in terms of price. Secondly, the overall production of urea is relatively high. Although there is a possibility of production cuts or halts due to the 70th anniversary celebrations in the future, no further confirmation has been given yet. The duration of such production cuts remains uncertain, and there is still one and a half months left for production. Most domestic companies do not have any major maintenance plans at the moment. Based on the current daily urea production levels across the country, the supply of urea by early October is expected to remain around 7 million tons. Additionally, some companies that rely on gas as a raw material are accelerating their production efforts to avoid potential gas shortages during winter. Given the surplus capacity in production, the likelihood of an increase in urea prices is relatively low. Finally, domestic market demand is relatively average. The demand from industrial plywood factories and power plants has been relatively average recently, while demand in local markets in various areas is fairly weak, with only occasional purchases taking place. The operation rate of compound fertilizer plants is slightly above 40%, with only minor fluctuations. Domestic demand for urea in the autumn season is relatively low, resulting in average transaction levels. In summary, overall market demand has been relatively weak recently, and some companies have begun to target the off-peak storage market. However, in recent years some distributors have also suffered losses in this area. It is expected that market demand will remain limited in the future, and urea prices are likely to continue to fall. (Wu Wenchao)