The increase in urea prices was short-lived; when is the next good time to purchase it?

Thread Content

The increase in urea prices was short-lived; when is the next good time to purchase it? Author/Source: China Fertilizer Network Date: 2019-08-28 Clicks: 1 As expected, the lowest price for urea this year was not in July, nor really in August. Taking Shandong as an example, starting from August 14th, the mainstream ex-factory price of urea rose from around 1770 yuan per ton to around 1800 yuan per ton; however, by August 21st the price dropped again, and currently it has returned to its original level, with the mainstream ex-factory price being only 1740–1760 yuan per ton. This round of urea price increases has officially failed – where exactly lies the problem? When will be the next time to pick up the goods? 　　On the one hand, this round of urea price increases is merely a trial by urea manufacturers due to a slight increase in pending orders, with little real backing for such price hikes. The manufacturers’ pending orders include a trend of decreases followed by increases in the receipt of goods by compound fertilizer companies due to the passage of typhoons; they also involve stock replenishment at ports as a result of expectations of delays in ship schedules for printing labels. Additionally, there is buying at lower prices by agricultural distributors after seeing that the export price from Shandong dropped to 1,700–1,720 yuan per ton (50 yuan per ton or more lower than the lowest price at the end of last year). This attempt to push up prices has had some effect; the resulting chain reaction was that some distributors started purchasing more goods in pursuit of lower prices. However, the weak demand proved to be a problem – by the end of June, the demand from compound fertilizer manufacturers had already been largely exhausted. The desire of agricultural distributors to buy goods at low prices also led to a reduction in purchases in September. Export prices have dropped significantly (only 250 dollars per ton for shipments to places like Egypt), and there are very few destinations available for exports in the short term. There is not enough basis for price increases, so any rise in urea prices was only temporary. 　　On the other hand, supply has only decreased slightly, shifting from a severe surplus to a slight surplus; daily production has just dropped below 150,000 tons, and this temporary reduction has not yet had an effect. It is understood that there are a slightly larger number of urea production plants undergoing maintenance in the short term. A factory in Henan has been operating at half capacity, while a few factories in Shanxi are not operating at full capacity. Starting from August 15, one factory in Inner Mongolia will be under maintenance, another one in Inner Mongolia will undergo maintenance on the 22nd, and a factory in Shaanxi will start maintenance on the 26th. By mid-September, provided there are no disruptions related to environmental regulations, these factories will all operate at full capacity. Only most of the factories in Shanxi will reduce their production later in September, depending on the circumstances surrounding the military parade; therefore, the daily urea production volume will be very high during that period. It is likely that this will represent the lowest price for urea throughout 2019, with a small chance that the lowest price could occur in October. In short, it is only by November, under the pressure of ensuring natural gas supply for domestic use and strict oversight on coal-using enterprises, that daily urea production will truly decline, thereby creating real upward pressure on prices. 　　Having discussed so many negative factors, what exactly is going on with manufacturers in places like Inner Mongolia stopping sales after collecting low prices? What is the reason why urea manufacturers in regions such as Shandong and the southwest are so anxious? It’s quite easy to explain: it’s normal practice for the four companies in Inner Mongolia, Shaanxi, and Ningxia to maintain stable prices after charging low fees during maintenance work ； Low-priced urea from Inner Mongolia will arrive in regions such as Shandong and the southwest in another one or two weeks, and competition is intensifying; therefore, urea producers in these areas need to be cautious about this low-priced urea. After the suspension of production in Inner Mongolia, it is likely that the same pattern of temporary price increases will occur in places like Shandong. Of course, given that the prices of crude oil and the raw materials used in urea production have not reached the disastrous levels seen in 2016, urea manufacturers should not face extremely low prices. 　　Judging from the current supply and demand situation in the urea market, dealers who have already purchased urea seem to be feeling anxious, especially since some of the urea at higher prices is still on its way, while new supplies at much lower prices are also about to arrive. With no other options, dealers holding urea at higher prices can only hope that urea manufacturers will limit production during the period in question, rather than downstream users doing the same. 　　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. New low prices will emerge in September, after which either the price will drop below the cost level and some urea manufacturers will cease production to avoid further losses, or new factors will drive up demand. In most likely scenarios, the daily production of urea will actually decrease, causing urea prices to rise; this is when it becomes necessary for us distributors to stock up in advance. The lowest prices of the year are likely to be seen in mid-September, meaning it is a relatively good time to purchase urea. 　　(Cheyanhong) http://www.nmtech.com.cn/sys/sec_zxwz.jpg