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Urea faces price pressure: An upward move in the offing? Or will it fall if it doesn’t rise? Author/Source: China Fertilizer Network Date: 2019-12-24 Clicks: 68 There were numerous bids for urea in India in 2019, and the number of such bids exceeded expectations; this was due to favorable weather conditions during India’s monsoon season, which led to a higher demand for urea compared to previous years. As the year came to an end, another bidding process was launched. On December 20, India’s MMTC company issued a new call for the import of urea in unspecified quantities, with the latest shipping date set for January 28, 2020 (Chinese New Year falls on January 25, 2020). The bidding process will begin on December 27. Looking back at previous tenders in India, this one is particularly similar to the tender held in July this year; it also falls during the slowest period in China’s domestic urea market. Should we reduce prices for exports and raise domestic prices at an appropriate time? Should we still not export and instead reduce prices slowly for domestic sales? At that time, the price trend was such that once the bidding price was announced, domestic urea prices rose slightly before gradually falling back. Will urea prices rise at an appropriate time after this labeling? Will it still fall if it doesn’t rise? Read on. Firstly, as usual, exports still account for a relatively small proportion of China’s total urea consumption, so there is no need to pay too much attention to them. From January to October, 3.89 million tons were exported, of which almost one-third was urea that was transferred to other ports. Given that domestic demand for urea is over 30 million tons and industrial demand is over 15 million tons, exports still have only a slight impact on domestic prices, either in terms of price fluctuations or psychologically; therefore, there is no need to pay too much attention to the volume of exports. Although this is a bidding process with price increases, given that the current price in the Middle East is 240–245 dollars per unit, and in China it’s 250 dollars per unit, with an exchange rate of 7, the price at the port is only around 1,750 yuan. After deducting an average of 50 yuan for port-related expenses, as well as freight costs ranging from 50 to 100 yuan or more from the factory to the port, the price at which the manufacturer sells the product remains lower than the price for domestic sales. Secondly, exporting is not worthwhile, and in the short term there are also few prospects in the domestic market. The industry needs to take time off due to poor performance; with the Double Festival approaching, and especially given the intermittent environmental protection warnings, it makes sense to suspend operations for a break – there’s no real loss in resuming work after the New Year ； Agriculture does require the use of urea, but there is still plenty of time. The Spring Festival falls on January 25th, the beginning of spring comes on February 4th, and the Lantern Festival is on February 8th; it seems that the temperatures are not suitable for fertilization at this time. It seems that it’s fine to apply urea before or after the holidays. Once again, supply is likely to reach a high level after January 15th. Gas head factories in Henan, Sichuan and Chongqing, as well as those in Inner Mongolia, may all resume production, and the total daily urea production will then exceed 135,000 tons. Currently, the operating rate of urea plants is slightly low, with a daily production of only 123,000 tons. Urea prices remain stuck at low levels, with little decline, and the purchase prices in Linyi even show occasional increases. In short, if there are no changes in policy and if manufacturers do not deliberately drive up prices, urea prices will remain weak and stagnant in the short term. Occasionally, some customers may worry about transportation issues or the limited time available for sales after the Spring Festival, leading them to place orders in advance. Additionally, if India’s tender process results in an appropriate amount of urea being allocated for purchase, or if domestic distributors receive hints that rising international prices will lead to higher domestic prices, then it is possible that prices could see a slight increase similar to what occurred after India’s tender in July. However, taking all these factors into account, urea prices are not likely to rise before the Spring Festival; rather, prices are more likely to drop after a slight increase, as this would enable more orders to be placed during the period around the Spring Festival, which lasts over half a month. It is also possible that prices will remain stable after India’s tender on the 27th, with no increase at all. In short, this tender is once again of little use. If we consider things in the long term, and taking into account that domestic production capacity is likely to exceed 2 million tons by 2020, our country should win some bids. By compromising on exports, we can be more confident in raising prices one or two times during the spring season. (Cheyan Hong)