Urea: A new development in autumn; the market is in a state of tension

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Urea: Another round of fluctuations in autumn – the market in a state of uncertainty
Author/Source: China Fertilizer Network
Date: September 25, 2019
Clicks: 12

In the middle and late September, the shipping phase for fertilizer companies comes to an end, and sales in local markets enter their peak season. With the commoditization of fertilizers, overall price trends do not follow a consistent pattern compared to last year. Both compound fertilizers, which are commonly sold, and ammonium phosphate, a high-phosphorus fertilizer used in autumn, have underperformed. In particular, the price of 64% ammonium dihydrogen phosphate in North China has dropped to around 2,450 yuan per ton; even large traders are selling it at lower prices, resulting in a situation where prices are actually lower than the cost of production. Urea, which serves as a barometer for the fertilizer market, has also seen its prices decline recently. In Shandong Province, the ex-factory price of urea has fallen to 1,780–1,830 yuan per ton, while compound fertilizer manufacturers in Linyi are purchasing urea at 1,830 yuan per ton. There are rumors that prices at the lower end have dropped to 1,750 yuan or slightly less. In Hebei Province, the typical ex-factory price of urea is 1,780–1,850 yuan, while in Henan Province it is 1,770–1,780 yuan. Although some regions have released their demand ahead of schedule due to environmental and safety inspections, overall prices have not increased. Manufacturers are eager to raise prices, while the downstream market remains cautious, leading to a stagnant market situation. There are various opinions regarding the future trend of urea prices. According to industry experts, here are a few predictions: Prediction 1: Urea prices may rise before mid-October. Due to the increased demand from plywood factories in regions such as Shandong, the price of urea in the Linyi area has stopped falling and remains stable. Environmental and safety inspections affect not only the industrial market; urea production facilities also operate under high temperature and pressure conditions. Although no specific production restrictions have been imposed yet, urea manufacturers in Shandong, Shanxi, and other regions may introduce such restrictions. On the other hand, October is approaching, and the winter storage season is about to begin. Both compound fertilizer manufacturers and agricultural users are likely to increase their purchases. In previous years, production would decline after winter set in, reducing supply pressure and potentially leading to an increase in prices. Prediction two: As fatigue sets in, transaction volumes may gradually decline. At the current stage, demand in the autumn market is low; and even where there is demand, traders across various regions have essentially already made all their purchases. In the industrial sector, the decline in orders for fertilizers during autumn, coupled with the poor performance of panel manufacturers, has resulted in low overall sales volumes. The international market is also in a poor condition – there are few bidding opportunities in India, and prices are about $100 lower than they were during the same period last year. To alleviate the pressures they face at present, companies are likely to accept orders at lower prices. Prediction three: Volatility will be the dominant factor, with a relatively high frequency of price adjustments. Some in the industry believe that current market demand is relatively weak; either holding prices steady or cutting prices indiscriminately will not encourage downstream buyers to place orders. It is expected that prices may rise sharply once companies receive orders at lower levels, which in turn will stimulate downstream buyers to make purchases. Moreover, even if no actual sales occur, it’s not a problem to adjust prices again once the inventory levels have been depleted to a certain extent. In summary, it is expected that due to the relatively weak market demand at present, the competitive dynamics between suppliers and buyers in the urea industry will continue for some time. Corporate sales pressures are likely to increase after the 25th, and there may be signs of a decline in actual transaction prices. However, the exact extent of this decline and the timing when a bottom will be reached will depend on the companies’ production activities in the near future. (Wu Wenchao)