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Should I follow this increase in urea prices? What is a plausible speculation regarding the print marking results? Author/Source: China Fertilizer Network Date: 2019-09-16 Clicks: 7 Mid-September has arrived, yet the expected drop in urea prices has not yet occurred; the price only dropped slightly and symbolically on September 5 before rising again. The highest increase in factory prices for urea was 40 yuan per ton among manufacturers in Shandong’s Lianghe region as well as in Jiangsu and Anhui provinces. The price increase for urea at fertilizer factories in Linyi was even higher, ranging from 50 to 70 yuan per ton. What are the reasons for this increase in urea prices? Should our distributors get some goods as well? What kind of bidding situation might this bidding process, with the deadline on the evening of September 13, entail? Is it a great benefit for China? In this article, we will explain each one in turn. This price increase was unexpected, but it has some justification. There were some somewhat unexpected factors, such as a major agrochemical company purchasing around 200,000 tons of urea; or the fact that on September 6th, a policy regarding strategic stockpiling was announced; or the fact that on the same day, India issued new tenders for the purchase of urea. The reasonable reasons are as follows: first, the daily urea production volume remained at a low level of around 147,000 tons from the second half of August to the beginning of September. Additionally, in order to maintain air quality in Beijing during particularly critical periods, urea manufacturers will implement another round of production restrictions in late September, or at the latest at the end of September/beginning of October. Secondly, fertilizer manufacturers’ demand for urea was slightly higher than expected; small enterprises were largely shut down, while large enterprises maintained an average operating rate of around 50% for over three weeks in a row. This final surge in demand provided a solid reason for the rise in urea prices. Thirdly, during the previous two instances when prices seemed to have reached bottom levels, some distributors had already acquired a certain amount of urea; they can now use this price increase as an opportunity to sell their stock. In particular, this time the urea manufacturers actually had the confidence to raise prices after acquiring orders at low prices on two or three occasions, which makes this price increase entirely logical. As for whether our distributors should continue to order goods,? Answer: Customers with essential needs can purchase less, while those without such urgent needs can wait until prices truly bottom out before making purchases. The reason is obvious: given the poor overall economic conditions, prices for raw materials such as coal, natural gas, and related products like liquid ammonia will not be very good. As a result, urea is unlikely to see significant price increases. Demand for urea from plywood factories, power plants, and compound fertilizer manufacturers remains relatively low most of the time. Urea is not easy to handle, especially since it is currently the end of the autumn fertilizer production period for these companies; before winter fertilizer production begins at the end of October or even later, any increase in urea prices is likely to be driven by speculation and relies on exports. When it comes to exports, it is inevitable to carefully analyze this bidding process. The deadline for submitting bids is September 13th at night, and by then the number of bids submitted by suppliers as well as their bid prices will be known. India will then determine its counteroffer prices, and it is not until around the 20th that the number of winners will be decided. Firstly, the current offshore guidance price for urea in the Middle East is 255–270 dollars per ton, with transaction prices already leaning towards this higher range. The offshore guidance price for urea in China is 260–263 dollars per ton; roughly speaking, the lowest bid prices in India are lower than China’s urea offshore price. Secondly, the lowest bid price obtained in the tender held on September 12 for 100,000 tons each of large and small particle urea in Bangladesh is approximately $258 per ton at China’s ex-ship price for urea. The lowest bid price in the tender should be on par with or slightly lower than China’s ex-ship price for urea. Once again, industry experts’ views on the minimum bidding price for printing labels range from $270 to $280 per ton CIF. It is said that there are limited supplies available at a CIF price of $270 per ton; although the quantity is limited, it is likely that the minimum bidding price will be $270 per ton CIF. Taking into account the shipping cost of $15 per ton and the handling fee of $2 per ton, the ex-ship price of urea in our country is approximately $253 per ton. Finally, based on the above, our estimated range is $253–263 per ton for Indian and Pakistani urea when shipped offshore. At an exchange rate of 7.09 and with a value-added tax of 9%, the price of urea delivered to major ports in China such as Yantai Port would be at most 1,760 yuan per ton. There is still no support for higher prices. As for the quantity, the shipping date is October 16th, and the time available from September 20th to October 16th to ship urea to the ports is not sufficient. It is estimated that even if a bid is made at a low price, the quantity awarded will likely not exceed 500,000 tons; industry experts suggest it might be as low as 250,000 tons. Overall, this price increase has disrupted the normal downward trend in urea prices during the off-season; companies that produce compound fertilizers will order less of urea. The results of the pricing decisions are likely to depress the export prices of urea from China, which in turn will affect domestic market conditions. As a result, urea prices are likely to see another drop below previous levels by September 20th, and our distributors should not raise their prices in line with these increases ； It is understood that our country seems to have no choice but to export; otherwise, once the daily production of urea rises to 155,000 tons or even 160,000 tons by mid-October, urea prices will still not be able to start rising steadily after reaching their lowest point. (Che Yanhong)