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Urea prices are still rising – will it be crushed in half? Author/Source: China Fertilizer Network Date: 2020-02-27 Clicks: 50 In the little less than a week since the evening of February 20, the ex-factory prices of urea produced by manufacturers in Shandong’s Lianghe Mountain area, as well as in Jiangsu and Anhui provinces, have increased by 50–100 yuan per ton. A similar increase has been observed in regions such as the southwest, Inner Mongolia, and the northwest. Urea prices are rising rapidly across various regions, with significant increases as well. Dealers are calling one after another, asking whether there is sufficient basis for these price hikes Will it break in half? See, this is why urea prices rise: demand for urea in spring accounts for over 60% of the annual demand. There are many people who want to get involved in the urea market; dealers keep asking for quotes and making purchases, which naturally drives up urea prices. If several thousand tons of orders are placed this year, urea prices could rise by another 20-30% by tomorrow; if tens of thousands of tons are ordered today, prices could increase by 50% by tomorrow. The first round of purchases for essential agricultural needs is coming to an end. Due to the pandemic, industrial compound fertilizer manufacturers that had delayed resuming production have now set dates for restarting operations. The demand from both the industrial and agricultural sectors is well balanced, and transportation services have only resumed a few days ago; there is still a slight shortage in some areas. As a result, the increase in urea prices is more widespread and lasts longer than in the previous round, but the extent of the price increase is similar to that seen in the first round. That’s why it is said that urea prices are still rising and have further room to increase. The price increase came earlier than expected, making it difficult to finalize this rise. It must be emphasized that there is no shortage of urea; the daily production volume has been 140,000 tons for over a week now, and unless anything goes wrong, it is expected to rise back to 150,000 tons per day by mid-March. Transportation is set to return to normal, especially with tolls on highways being removed. Some high-priced urea will begin arriving at various distribution centers at the beginning of March, and urea purchased at lower prices earlier in the year will also reach those centers after mid-March. As for demand, industrial demand is recovering very slowly; therefore, the only hope lies in an increase in production by compound fertilizer manufacturers. Given that the prices of raw materials such as ammonium nitrate and urea are high, if these manufacturers cannot raise their prices, they may be reluctant to increase their production levels. Considering the timing of sales, they either need to produce quickly in order to sell their products promptly, or they can produce more slowly and wait for the prices of raw materials to drop. Thus, it will take time to determine whether compound fertilizer manufacturers will be able to absorb the increased costs of urea. At the beginning of the price increase, some distributors waited to see what would happen, preferring to buy when prices were high rather than low. Most distributors had already placed some orders. It must be said that we are now in the middle stage of this price increase; it’s even possible that prices will drop before another rise occurs. The current situation is delicate: urea manufacturers have a large amount of product ready for shipment, and their inventories are being reduced. Of course, production continues as usual. Once transportation resumes fully within two weeks and supplies at various distribution points become more abundant, yet agricultural demand at the grassroots level remains slow to pick up, then urea manufacturers are likely to fail to secure any new orders at high prices. Therefore, a cooling down of the urea market is only a matter of time – either at the beginning of March or around March 15th. So, could the price be cut in half? In other words, the decline is greater than the increase; the answer is no. Returning to the topic at the beginning of this article, expectations for urea prices in spring have been positive; even in the spring of 2016, urea prices did not fall below the cost level. Regarding this round of price increases for urea, our outlook is cautiously optimistic – it is likely that prices will rise more than they fall. The uncertain factor is the impact of the pandemic: to what extent will industrial demand decline? Due to the pandemic, agricultural demand is playing a dominant role; could transportation and supply become extremely rapid, resulting in an influx of urea supplies to local markets? Might urea prices drop sooner than expected? ( Che Yanhong)