Urea has risen back to 1800 – will it drop again?

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Urea has risen back to 1800 – will it drop again? Author/Source: China Fertilizer Network Date: 2019-08-20 Clicks: 7 As is well known, starting from August 10, the price of urea began to fall more rapidly. Taking Shandong as an example, the mainstream ex-factory price there dropped from around 1,850 yuan per ton to about 1,770 yuan per ton; the price for shipments to other regions even fell to 1,700–1,720 yuan per ton. A few days later, starting on August 14, the price of urea in Shandong began to rise again, with the mainstream ex-factory price returning to around 1,800 yuan per ton. Prices in regions such as Hebei, Jiangsu, and Anhui also increased to some extent. Is 1,800 yuan per ton the lowest price this year? Can prices keep rising from here? Will there be a bottom price lower than the previous one? 　　Firstly, the demand for autumn fertilizers has not yet been fully met, so it is reasonable for urea prices to rise after experiencing a sharp decline. Regarding the demand for autumn fertilizers, on the one hand, compound fertilizer manufacturers take into account the delivery timeline of over half a month; thus, production is generally concentrated before the end of August. Coupled with the increased production by these manufacturers following typhoons, it is only natural that urea prices have risen again recently. However, this year, given the military parade to mark the 70th anniversary of the founding of the country and the immense pressure to protect the environment (starting on August 19, the Central Environmental Protection Team conducted special inspections in Linyi, Tai’an, and other areas as part of the three-year plan to safeguard clear skies), compound fertilizer manufacturers began production at full pace as early as the end of June. The demand for urea is likely to be low going forward, and purchases by these manufacturers will be intermittent, so it is unlikely to exert sustained upward pressure on urea prices. Additionally, if fertilization is carried out directly in autumn, it should be after early October, as it is still too early at that time. In recent years, the amount of fertilizer used has decreased, and many distributors purchase it as needed. There is a common belief that July represents the lowest price for urea throughout the year; as a result, some distributors have already purchased their supply, which is one of the reasons why prices dropped so slowly at first. Going forward, the gap in the amount of fertilizer that distributors can obtain directly should be limited. Furthermore, the economic situation is poor, and orders for industrial power plants have remained sluggish ； Receiving orders by the plywood factories may improve, but the specific situation remains to be seen. 　　Secondly, on the export side, there has been support in terms of volume, but no boost in prices. On July 1, India won bids for 1.69 million tons of urea. The amount of urea produced in China that was awarded to bidders, amounting to 710,000 tons, contributed to a gradual decline in urea prices in that country. The recent acceleration in price increases can also be attributed to exports; for example, a large factory in Shandong signed a small number of new export orders at low prices. However, the expectation that domestic prices would be more than 50 yuan higher than export prices was not realized; currently, the lowest factory prices in Inner Mongolia and Shanxi are about 50 yuan lower than the prices quoted in India’s tender on July 1. Although India agreed to delay the ship’s arrival date from August 16 to the 23rd, a shipment of 60,000 tons incurs a compensation cost of around $12,000 per day, excluding the days when the port is closed due to typhoons. The benefits this brings to our country remain minimal. Another negative development is that India’s tender process, originally scheduled for the end of August, might be postponed. Of course, this can’t be considered entirely negative either; if India doesn’t offer lower prices, the rise in urea prices in our country might continue for a while longer. 　　Once again, the daily output has decreased in the short term, and it may reach a new peak in the first half of September. Recently, a slightly larger number of enterprises have been under maintenance: a factory in Henan has been operating at half capacity, a few factories in Shanxi are not operating at full capacity. A factory in Shaanxi began maintenance work at the beginning of August, while a factory in Inner Mongolia started maintenance on August 15th, and another factory in Inner Mongolia began maintenance on August 22nd. As a result, the daily urea production volume remains below 158,000 tons in the short term, which provides support for urea prices; however, it seems insufficient to drive a significant increase in urea prices. By mid-September, barring any disruptions such as environmental regulations, these factories will all be operating at full capacity. Another factory in Shaanxi will undergo maintenance at the beginning of September, while most factories in Shanxi will only reduce production later in September, depending on the circumstances surrounding the military parade. As a result, the daily urea production volume will be very high during that period, and it is likely that this will represent the lowest price for urea throughout 2019. Alternatively, it could be in October. In short, it is not until November, under pressures such as the need to ensure natural gas supply for civilian use, that the daily urea production volume will actually decline, allowing prices to continue to rise. 　　Finally, the competition among manufacturers’ attitudes is an important factor determining how long the increase in urea prices will last. Since the manufacturers are expecting to release large quantities in the near future, it’s normal for prices to be slightly high. If distributors can wait a bit longer and purchase the products in September, that might be a good strategy; after all, various factors indicate that urea prices are unlikely to rise significantly. 　　In short, those of us in the urea industry can no longer rely on historical prices or think in conventional terms; instead, we need to make judgments by taking into account the overall economic situation, new policies, and environmental pressures. Although the price of urea has risen back to 1800, it is difficult for it to keep rising; low prices will appear in September. Only when the daily production of urea truly decreases will there be a need to stock up on urea in advance. 　　(Cheyan Hong)