Urea prices rebounded before National Day – did you notice that?

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Urea prices rebounded before National Day – did you notice that? Author/Source: China Fertilizer Network Date: 2019-09-27 Clicks: 3 As is well known, by convention, urea manufacturers aim to secure orders for ten days or even half a month in advance of the National Day holiday. This year, the competition to secure orders was particularly chaotic: a few manufacturers received orders covering more than half a month at minimum prices slightly higher than those in previous rounds, while another few managed to get all the orders needed for the National Day period within a single day at minimum prices lower than those in previous rounds. At present, these manufacturers have stopped accepting orders at those low prices; the prices offered by manufacturers in Shanxi have already increased two or three times ； Of course, there are still some manufacturers that continue to lower the amounts received, either explicitly or implicitly. 　　It can be said that within just two days, Monday and Tuesday of this week, urea manufacturers saw a new round of price recovery after hitting bottom levels; they shifted from accepting orders at significantly reduced prices to stopping sales and raising prices. What exactly happened during this time? How should our distributors respond? In this article, let’s take a detailed look together. 　　Firstly, the significant drop in the operating rate of urea production on the eve of National Day, which had been anticipated earlier, has finally occurred; as of now, the daily urea production volume has dropped from its previous high of 158,000 tons to 138,000 tons on September 25th. This year, the interval between the Mid-Autumn Festival and National Day is relatively short. Urine fertilizer manufacturers need to reduce prices significantly in order to secure orders for about half a month. Additionally, with the 70th anniversary military parade taking place, and in an effort to maintain air quality during this special period, manufacturers in Shandong, Shanxi, and Henan reduced production or halted operations on a large scale. This change was implemented within just two days, from the 24th to the 25th. As a result, some manufacturers in Inner Mongolia, Shanxi, Shaanxi, and Shandong, who were struggling to collect payments last Monday, were able to do so by reducing prices significantly, and have since switched to stopping sales and raising prices starting from Tuesday. 　　Secondly, another explicit or implicit price cut to attract orders has given our distributors the feeling that prices have reached a new bottom, making it only logical for them to make the payments. In fact, it is still due to cost considerations. With late autumn approaching and winter on the horizon, it is likely that the prices of natural gas and coal will not drop significantly. In fact, if it is necessary to ensure supply for domestic use, these prices are likely to rise instead. Taking Shandong as an example, given that it is unlikely for the ex-factory price to exceed 1,700 yuan per ton, it is only logical that distributors or compound fertilizer manufacturers who purchased goods at that price or slightly above it in previous rounds will continue to place orders. 　　Once again, on the demand side, there is the need to complete autumn fertilizer preparation and get ready for winter storage production; meanwhile, there are also requirements from Bangladesh and India. In order to avoid potential surges in demand later on, some compound fertilizer manufacturers and distributors prefer to purchase goods in advance. After the 11th, winter wheat will be sown in most areas. In particular, starting from late October and thereafter, some compound fertilizer manufacturers need to consider producing fertilizer for winter storage. At present, these companies are seeing a surge in prices for such fertilizer products; once the companies with production capacity receive sufficient orders, the relationship between compound fertilizer manufacturers and urea producers begins. Bangladesh issued a supplementary tender for the purchase of 100,000 tons of urea following the previous tender, with the bidding process concluding on October 7. Ethiopia’s tender has been postponed to September 30. By January next year, India might face a shortage of 2 million tons of urea. New tenders for urea purchases could be held in October, especially after October 16. All these factors, which seem favorable, make urea manufacturers reluctant to reduce prices; or rather, considering the price trends over the past three years, they expect prices to rise significantly during winter, driven by both reduced exports and lower production levels. Therefore, it is difficult for them to cut prices at the moment. 　　Finally, it must be said that none of this takes into sufficient account the fact that the supply and demand situation for urea has shifted from a tight balance with supply falling short of demand in the previous two years to a slightly more relaxed supply situation this year, or even a situation where supply exceeds demand slightly. Both the significant increase in supply and the substantial decline in domestic industrial demand were discussed in the author’s previous article. Regarding demand, it is well known that due to the unfavorable economic conditions, domestic industrial plywood factories and power plants have seen a continuous decrease in their demand for urea. In the case of compound fertilizer manufacturers, urea is increasingly being replaced by substances such as ammonium chloride and sulfuric acid an when it comes to purchasing urea or in the sales of compound fertilizers themselves ； On the supply side, since April this year, China’s daily urea production has remained above 150,000 tons on most days (with the exception of late August). Looking back, daily production had consistently been above 150,000 tons in the spring of 2017 and in July 2016, and even earlier – at that time it was over 160,000 tons, sometimes as high as 200,000 tons. 　　In short, regarding the rebound in urea prices ahead of the National Day holiday, our compound fertilizer manufacturers and distributors need to approach this situation calmly. We should not judge the market using conventional thinking, nor should we purchase large quantities of urea. Some industry experts say that the price trend this year might be similar to that in 2016, with urea prices possibly falling below the cost level by next spring. Therefore, until next spring, it is best for us to be cautious in our handling of urea purchases. 　　 　　(Cheyan Hong)