There are quite a few twists and turns in the adjustments to urea prices

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There are quite a few “twists and turns” regarding urea price adjustments. Author/Source: China Fertilizer Network. Date: January 19, 2020. Page views: 588. Just before the Spring Festival, the domestic fertilizer market gradually calmed down. Among all fertilizers, urea attracted the most attention, with its price fluctuating up and down. At present, these fluctuations seem to be rather minor in scale. Indeed, after a week of rising prices, prices began to decline locally. Moreover, with urea producers in the southwestern region gradually resuming operations, their high production levels suggest that there is still room for further price drops. When it comes to urea, one can truly say that it has “many twists and turns.” Of course, apart from affecting the costs of downstream enterprises, changes in urea also have a relatively significant impact on ammonium chloride. 　　First, let’s see how the drama unfolds in the urea market. On the one hand, the operation level of urea manufacturers will undoubtedly continue to rise; the production units of urea plants in the southwestern region have already been restarted and are about to start producing products. In addition, some urea manufacturers that had been shut down for a long time in regions such as Henan and Anhui have also resumed production ； Additionally, with the Spring Festival approaching, liquid ammonia—which is related to the production process—will also put downward pressure on urea prices. Given the difficulties in storing and transporting liquid ammonia, as well as the reduced operations of ammonia-using enterprises, some companies are shifting their production focus to urea. The closer it gets to the Spring Festival, the higher the utilization rate of urea production becomes. On the other hand, demand for urea shows a weakening trend. It is currently the off-season for agriculture; end-users in the market are adopting a cautious, wait-and-see attitude toward purchases. Major agricultural input suppliers also procure only what is needed at the moment, given the considerations of transportation and inventory levels; thus, the overall purchasing volume is expected to remain limited ； Demand from industrial power plants remains acceptable; however, there are far too many plywood mills that have ceased operations. Additionally, some small- and medium-sized compound fertilizer manufacturers are also gradually shutting down, while other such companies have announced plans to halt production. According to statistics from China Fertilizer Network, the current operating rate of compound fertilizer producers is approximately 41.42%. Should this figure continue to decline, the volume of raw material shipments will inevitably decrease further. In terms of supply and demand, although urea producers have a relatively sufficient backlog of orders to be fulfilled before the Spring Festival, this support appears somewhat “weak”. Nevertheless, ahead of the festival, it is still necessary to foster a positive atmosphere; overall, the market is expected to experience slight consolidation with a tendency toward weakness. 　　Given the fluctuating prices of urea, the impact on the costs of downstream enterprises or on ammonium chloride also changes frequently. As mentioned above, the urea production facilities in the southwestern region have begun operations again one after another; a few maintenance-related or gas-based production facilities in other regions also plan to resume operations in the short term or after the Spring Festival. There is a risk of price declines, and conditions will improve only once transportation resumes and downstream production gets back on track. For ammonium chloride, this means negative impacts first, followed by positive effects ； Moreover, it is unlikely that the operating capacity of ammonium chloride production plants will see a significant reduction. At present, only a few manufacturers, such as one in Hubei, have indicated plans to reduce their production volume; meanwhile, a few others have seen a slight decrease in output due to issues with their facilities. The production levels of the remaining companies remain above 80% of normal. According to statistics from China Fertilizer Network, the overall operating rate of the caustic soda industry as of now is around 79.55%, and there is little room for further reduction in the future ； The demand for ammonium chloride is also expected to show a downward trend. At present, most ammonium chloride manufacturers say they are processing existing orders, but new orders are being placed slowly in limited quantities. In particular, in some areas, road transportation has come to a near standstill. Fertilizer manufacturers that produce compound fertilizers as well as those that produce granulated ammonium chloride may reduce their production levels or even shut down. Environmental and safety inspections remain strict, which has a significant impact on downstream enterprises, leading to a decrease in the purchase of various raw materials used in fertilizer production. 　　In summary, the urea market is set to see an increase in production levels, a decline in demand, limited stock available for shipment, and increasingly negative factors; as a result, the trend toward a weakening market momentum will continue, and price adjustments are likely to occur again on multiple occasions. Ammonium chloride faces negative impacts; meanwhile, due to the high level of production and a gradual decline in demand, its outlook is also slightly bearish. However, before the Spring Festival, ammonium chloride manufacturers have the support of pending orders, along with adjustments in the industry’s mindset. It is expected that prices will remain stable in the near term, so caution is advised when making decisions. 　　 　　(Tan Junying)