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Should I be concerned about the rise in urea prices? Two positive factors to watch in September / Author/Source: China Fertilizer Network / Date: 2019-09-03 / Clicks: 6. At the end of August, the ex-factory price of urea rose again on a tentative basis. Following the second \"apparent bottom\" in prices on August 24 (with ex-warehouse prices in Shandong dropping to 1700–1720 yuan/ton), the mainstream ex-factory price of urea in Shandong has now increased by 10–20 yuan/ton, reaching 1740–1780 yuan/ton. Prices in regions such as the Two Rivers area, Jiangsu, and Anhui have also risen by 10–20 yuan/ton. Should I be concerned about this increase in urea prices? Is there a solid reason for this price increase? Should I go and get the goods? Answer: The reasons for the price increase are insufficient and should not be trusted. Customers with essential needs can purchase less, while those without such urgent needs can wait until mid-September, when prices truly reach their lowest point, before making purchases. Firstly, as the operating rate of compound fertilizer manufacturers increases, the demand for urea rises temporarily; however, this rate will soon decline, which will weaken the support for urea prices. According to statistics from Zhongfei Net, as of the end of August, the operating rate of compound fertilizer manufacturers reached 50%, which represents a peak level in the past month. A slight increase in urea prices is understandable, but given the delivery lead time of over half a month, and the fact that distributors take about a week to supply farmers with the products, coupled with the requirements related to environmental protection, the operating rate of compound fertilizer manufacturers is expected to drop significantly starting in mid-September. At that time, urea prices should also decline. The overall economic situation is poor, and the trade wars continue; industrial power plants and plywood factories have maintained a steady demand for urea, with no significant increase expected in the near future. Secondly, some urea has already been used for direct fertilization in agriculture, so the remaining gap is very small. After the 11th, winter wheat will be sown in many areas; the demand for urea as a base fertilizer is very low, and it is still too early to apply topdressing. Autumn is inherently a season when high-phosphorus and high-potassium fertilizers are used extensively. Coupled with the substitution of urea by ammonium chloride, sulfuric acid ammonia, and formulated fertilizers, and especially given the poor yields of food crops and cash crops in recent years, many areas have shifted from growing three crops per season to two, and from two crops per season to just one. As a result, the demand for urea for direct fertilization has decreased, which does not contribute to an increase in urea prices. Basically, only the impact of compound fertilizer manufacturers’ production activities on urea prices needs to be taken into consideration. Once again, export volumes are only slightly expected to increase, and the boost from export prices should not be significant. Although in the last week of August, Ethiopia issued a tender for the purchase of 600,000 tons of urea, and Bangladesh issued tenders for 200,000 tons each of urea in both large and small particle forms, and there are many rumors that India will issue new tenders as the deadline for its previous tender expired on the 23rd, last year Ethiopia imported less than 1,000 tons of urea from China, while Bangladesh purchased just over 200,000 tons from China. From January to July 2019, Bangladesh already acquired over 200,000 tons from China. The actual impact of these two tenders on China’s urea market is limited to price levels; there is only a slight increase in expectations regarding quantities. In terms of prices, the FOB price of urea in Egypt seems to have hit a bottom at around 250 dollars per ton, rising this week to 250–267 dollars per ton. On the other hand, the FOB reference price for urea in China has decreased, currently standing at only 253–263 dollars per ton. Based on an exchange rate of 7.15, the price of urea delivered to major ports in China such as Yantai is around 1700–1760 yuan per ton. Roughly speaking, it appears that the current export price of 1700 yuan per ton from Shandong will be maintained. Whether exports can boost urea prices will depend on whether China’s FOB price can be sustained, especially considering the actual volume of urea sold in tenders in countries like India. Finally, the daily urea production dropped to around 147,000 tons in late August, with a recovery to 160,000 tons expected by mid-September. Companies that have undergone maintenance recently still have inventory available for sale; low-priced supplies from Inner Mongolia and Xinjiang will arrive in various locations within a week, and urea prices are unlikely to continue rising. In particular, as long as the price of urea does not fall below its cost level, hitting the pain points for urea manufacturers, and as long as there is no reduction in natural gas or coal supply during winter, the operating rate of urea production will not drop to such an extent as to drive up prices. There are only two positives left in September, and they are weak ones. First is the ‘parade blue’ color requirement and environmental regulations that restrict the operation of urea manufacturers in Shandong and Shanxi; second, regarding exports, India may issue new tenders in mid-September. As the November military parade approaches, environmental inspections will become more stringent. Of course, if air quality meets the standards, there will be few restrictions on the operation of urea-producing enterprises in Shandong and Shanxi. Even if there are restrictions, it is likely to be after late September; reportedly, no official documents will be issued ； In mid-September, a large number of enterprises that had suspended operations for maintenance will resume production. For instance, a factory in Shaanxi resumed production at the beginning of September; two factories in Inner Mongolia restarted operations around September 10; and a factory in Xinjiang began operating in mid-September. During a certain period in September, the utilization rate of urea production facilities is expected to be very high. On the export front, India is likely to issue tenders in mid-September. The amount of urea that our country manages to secure through these tenders is particularly important. Prices are unlikely to be too high, as India no longer lacks urea after winning a bid for 1.69 million tons last time; lower bidding prices will enable our country to obtain more of it. If prices are high, well, India can win a small quantity and then issue new tenders. Moreover, the timing for printing the labels is merely speculative; if no tender is issued in September, the volume of urea exported from our country to other destinations is likely to be low, making it difficult to drive up domestic urea prices. In short, an increase in urea prices in the short term is not likely. Supply will increase in September while domestic demand will decline; as for the actual increase in exports, that remains to be seen. Prices are likely to drop. For us distributors, it’s fine to purchase goods for immediate needs in the near term, but it’s not advisable to stock up for the long term. (Cheyan Hong)