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Sharp Drop in Liquid Ammonia; Urea Faces Further Difficulties Author/Source: China Fertilizer Network Date: 2020-01-02 Clicks: 59 The New Year’s Day holiday has just passed, and the domestic fertilizer market has entered a new phase as well. Leaving aside the poor performance of the domestic fertilizer market at the end of 2019, things have not improved even at the start of this new year. Take urea, for example, which is the subject of our discussion today. Currently, the domestic urea market is operating in a weak state, with prices of small-grain urea continuing to decline slowly in various regions. It seems that the tender process that concluded on December 27 has been forgotten; there is no speculation nor any support for prices. Around late December, domestic liquid ammonia prices continued to decline, and they have been falling frequently ever since. The wide scope and significant magnitude of this decline are likely to “make matters worse” for the urea market. Under strict inspections regarding environmental protection and safety, the operation level of some ammonia-using enterprises has decreased, while those dealing with liquid ammonia continue to operate at high levels. Faced with a situation of obvious supply surplus, these liquid ammonia enterprises have to find their own solutions. It is understood that since late last month, the price of liquid ammonia in many regions across the country has decreased by approximately 100–400 yuan per ton ； Currently, the mainstream ex-factory pricing for acceptance in Hubei is around 2,340–2,360 yuan per ton, while in Shaanxi it is approximately 1,950–2,000 yuan per ton. In Sichuan and Chongqing, the mainstream ex-factory price based on cash transactions is around 2,800–2,850 yuan per ton. For price information on other regions, please join the member area of China Fertilizer Network to find out more. This creates obstacles for the urea market. It is understood that the price of urea is currently declining slowly; agricultural demand is weak, and industrial purchases are limited. In particular, the pace of procurement in both agriculture and industry will slow down before the Spring Festival, leading to even weaker demand. Currently, the mainstream ex-factory price of urea in Shandong is around 1,650–1,670 yuan per ton, while in Inner Mongolia it is around 1,470–1,540 yuan per ton. In the local markets, there is often a situation where prices are available but no supply exists; for example, the wholesale price in Jiangsu is around 1,740 yuan per ton. The trend of urea prices ahead of the Spring Festival is a matter of significant concern for the industry. As the price of liquid ammonia falls, companies may shift their production focus to urea, leading to an upward trend in urea production capacity. According to statistics from China Fertilizer Network, as of now the overall operating rate of urea production plants is around 44.63%, with a daily production volume of about 125,300 tons – a figure that is barely satisfactory. In contrast, most liquid ammonia production plants are operating at around 80% capacity; environmental or safety inspections have little impact on them. What has happened instead is that the operation rates of downstream enterprises that use ammonia have decreased, leading to a sharp drop in demand for liquid ammonia. The issue of restrictions on the use of hazardous materials transport vehicles is also one of the challenges faced by this industry. Various factors are contributing to a continuous decline in prices, as well as increased pressures related to shipments and costs. To minimize these pressures, some companies are shifting their focus to urea production. Of course, in addition to liquid ammonia affecting the operation of urea production plants, there may also be changes regarding urea itself. The production capacity of urea plants that use gas as a raw material remains low in the southwestern and Inner Mongolia regions; however, some of these plants say they expect to resume operations around the 10th or 15th of this month. In fact, in Sichuan and Chongqing, the production capacity of a few urea plants has seen a slight recovery recently ； In addition, a few urea manufacturers in Jiangsu and Anhui provinces that have suspended production will resume operations before the Spring Festival. Moreover, once the environmental protection warnings in regions such as Shanxi and Hebei are lifted, some urea manufacturers whose operations are restricted will also start working again. All these factors indicate an upward trend in the daily production capacity of urea. Weak demand is the fatal factor behind the sluggish market for urea. There should be no progress in the agricultural sector before the Spring Festival; end-users are unlikely to be willing to purchase fertilizers, and some local distributors also have some excess inventory or supplies they had stocked up earlier. Larger agrochemical suppliers, seeking to avoid risks, will continue to make purchases only as needed ； Industrial compound fertilizer manufacturers are operating at low levels; there is little willingness to purchase raw materials, and they may also suspend production during the Spring Festival ； The same goes for plywood mills. It is worth mentioning the labeling materials that have been \"left in the corner\" – a total of 2.4185 million tons of such materials were supplied by 17 different vendors. The lowest price on the West Coast is CFR 255.2 dollars per ton, while on the East Coast it is CFR 258.2 dollars per ton. There are rumors that China’s share of this volume will be very small, which means it won’t provide much support for the domestic market. As the saying goes, after Laba Festival, the New Year is near. The Spring Festival is just around the corner, yet demand in the fertilizer market remains elusive. With expectations of an increase in production by urea manufacturers on the one hand, and a decline in production on the other, an oversupply is inevitable. It is likely that the urea market will not see any improvement in the short term; under these unfavorable conditions, some companies may try to sell their products at low prices before the Spring Festival. (Tan Junying)