Urea prices drop again – who will clean up this mess?

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Urea prices drop again – who will clean up this mess? Author/Source: China Fertilizer Network Date: 2020-01-17 Clicks: 614 Previous analysis articles mentioned that the gradual resumption of production by urea manufacturers in the southwestern region would lead to a decline in urea prices; and indeed, after a brief increase, urea prices returned to stability. Subsequently, urea prices in regions such as Shanxi, Shaanxi, Hebei, and the southwest dropped slightly, by approximately 10–20 yuan per ton. Before the Spring Festival, the urea market is left in a chaotic state; as for how this situation will be resolved, demand doesn’t seem to be a viable solution. It remains to be seen whether liquid ammonia, which is closely related to this issue, can help sort out this chaos 　　Currently, the market conditions for liquid ammonia are similar in both the north and the south: prices remain high in the north while they are low and weak in the south, although some companies are seeing a gradual decline in their prices. In the near term, some companies in North China and East China have shifted their production focus from liquid ammonia to urea. Additionally, as some downstream enterprises preparing to purchase raw materials for the Spring Festival, the price of liquid ammonia has risen by up to 200 yuan per ton, resulting in overall high prices. In regions such as Central China and Northwest China, however, prices have remained low due to an ample supply of liquid ammonia; still, some companies have raised prices tentatively owing to temporary maintenance work on their facilities. Returning to the issue mentioned earlier, as urea prices decline in certain areas, other regions are bound to be affected or impacted. To achieve a win-win situation, some companies will likely shift their production focus toward liquid ammonia in the short term, thereby reducing the pressure on urea shipments and inventory levels. However, aside from the impact of liquid ammonia, other factors that influence urea prices cannot be ignored. 　　Firstly, the resumption of production by urea manufacturers in the southwest region has an impact on the industry. It is understood that starting this week, most of the urea production plants in the southwest region that had reduced or halted their operations have begun to resume production. According to statistics from China Fertilizer Network, the overall operational rate of urea production plants has risen to 47.28% as of now, with daily production amounts reaching around 132,700 tons. Moreover, more plants plan to start producing liquid ammonia before moving on to urea production ； Furthermore, with the Spring Festival approaching, there are restrictions on the transportation of hazardous chemicals. Additionally, factors such as the difficulty in storing liquid ammonia and limited storage tanks, along with cost considerations, mean that some companies will surely shift their production focus to urea at that time. This implies that the operating levels of urea-producing enterprises may remain high during this period, including during the Spring Festival. 　　Secondly, there should be no significant increase in demand for urea before the Spring Festival. Agricultural demand does not need to be considered for now, and procurement by local traders has essentially come to an end; agricultural demand is low ； Large agrochemical suppliers naturally purchase as needed, and it’s sufficient to restock in an appropriate amount before the Spring Festival based on prices ； Most industrial plywood factories have ceased operations, overall production levels are low, and the demand for urea has decreased significantly ； Fertilizer manufacturers also have sufficient raw material reserves for the Spring Festival, and their activities are mainly focused on restocking. It has been learned from the market that some small and medium-sized fertilizer companies in regions such as Hubei and parts of Guangdong and Guangxi have ceased operations, and it is possible that more companies in other areas will do the same; as a result, the demand for urea is likely to decrease ； Additionally, production cuts due to environmental protection and safety inspections must be taken into account; restrictions on transportation cannot be ignored either. 　　Once again, the impact of ammonium chloride, a low-cost nitrogen fertilizer, on urea is quite significant. Currently, the price of ammonium chloride remains stable, though it is not high. Although compound fertilizer manufacturers have limited stock of raw materials, they face considerable pressure in terms of inventory of their finished products. In order to reduce inventory levels and costs, and given that there are no plans for price increases in the ammonium chloride market in the short term, some of these manufacturers prefer to use cheaper ammonium chloride as a substitute for urea. 　　In summary, liquid ammonia alone cannot rectify the current situation regarding urea. In particular, switching to the production of liquid ammonia can only be a short-term measure. As for urea itself, there are several negative factors at play: plants using natural gas as a feedstock are resuming operations, while demand from both industrial and agricultural sectors is declining. It is anticipated that in the short term, urea prices will remain relatively stable but may experience a slight drop. Presumably, it will be the post-New Year demand that ultimately helps to resolve this difficult situation. 　　 　　(Tan Junying)