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Are urea futures on the way out? Prediction: It could experience sharp rises and falls! Author/Source: Agricultural Inputs News. Date: 2019-08-30. Clicks: 2. Last week was the third week since the listing of urea futures on the Zhengzhou Commodity Exchange; the overall trend was relatively calm, with both long and short positions being reduced, and trading volume as well as open interest reached their lowest levels since the product’s listing. The initial boom surrounding the launch of urea futures has faded; many people are now surprised that urea futures seem to be losing momentum. A mature futures contract requires a large number of investors who, through trading, provide sufficient liquidity for the futures contracts. Currently, there is a severe shortage of participants in the urea futures market; most physical enterprises related to urea prefer to adopt a wait-and-see attitude ； Financial institutions are not well-versed in urea varieties and hesitate to get involved on a large scale ； Small and medium-sized investors, constrained by factors such as the short duration since urea futures were introduced and the limited amount of historical price data, lack sufficient technical analysis tools, which also results in low enthusiasm on their part to participate. Multiple factors contributed to the sluggish trading of urea futures last week. This is just superficial; the underlying reason is the weak trend in the spot urea market. Last week, spot prices of urea across the country declined to varying degrees, with drops ranging from 10 to 30 yuan per ton. Sales were weak in the main markets, which dealt a significant blow to market confidence. The domestic supply of urea remains at a high level. Production for foreign trade orders has been completed at some major urea manufacturers, and the newly produced goods have begun to be sold domestically. Demand for urea in downstream applications continues to weaken; currently, there is almost no agricultural demand for it in field crops, and the amount of urea used in fertilizers for fruits and vegetables is minimal ； Compound fertilizer manufacturers have a low demand for urea; their finished product inventories remain high, resulting in little incentive to purchase raw urea ； The production of urea-formaldehyde resin is affected by environmental inspections, resulting in a low operating rate ； Affected by the mindset of buying when prices rise and avoiding purchases when prices fall, traders are not inclined to stock up. The international urea market is sluggish; there are production orders available for sale in the main export regions. Although the export prices of domestic urea have continued to fall, they still do not receive support from international buyers. All these factors have led to a weak domestic urea market. Such trends in the spot market have affected enthusiasm for futures trading. On Monday and Tuesday, the main urea futures contract UR2001 remained in a state of slight fluctuation around 1,740 yuan ； On Wednesday, short sellers entered the market, causing the main contract for urea futures to drop by 20 points ； On Thursdays and Fridays, the main contract for urea futures fluctuated slightly around 1,720 yuan. Although urea futures have fallen, short sellers enter and exit quickly, avoiding holding positions overnight ； Although long-position funds have entered the market, they mostly close their positions within the same day, lacking confidence in holding positions. The author believes that short sellers are concerned about financial capital rather than industrial capital, and they lack the capacity to short urea. Bullish investors are concerned that there is insufficient momentum for urea prices to rise in the short term, and entering the market too early would not be beneficial for their positions. Overall, current expectations for urea prices are mixed, with an unclear trend. As a financial derivative, urea futures find it difficult to attract capital investment in times of stability; as a result, trading volume and open positions for urea futures were low last week. In the future, as hype-related topics emerge, urea futures are likely to experience sharp rises and falls. (Meng Lingfeng, Guo Qing)