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Urea price increases enter the second phase Author/Source: China Fertilizer Network Date: 2020-03-06 Clicks: 118 The domestic urea market remained volatile at the end of February. Prices have risen across the board, and some companies have also said that they need to control new orders even when operating at full capacity; the increase in prices this time is significant. For example, the price of some urea in the southwestern market is around 2,000 yuan per ton ； By early March, urea prices remained high and continued to rise, though the upward trend has slowed down recently. The demand from the agricultural sector has eased slightly, giving way to demand from the industrial sector; it seems that the market has entered a phase of further price increases. According to statistics from China Fertilizer Network, the operating rate of the urea industry in China is currently around 54.17%, with a daily production volume of approximately 152,100 tons – a level that is relatively high since the period around the Spring Festival. Meanwhile, price increases have not been affected or constrained by this rise in production. At present, the standard ex-factory price for urea in Shandong is 1,780 yuan per ton, while in Henan it ranges from 1,770 to 1,800 yuan per ton. In Shanxi, the standard ex-factory price is around 1,700 yuan per ton, with some discounts available on purchases. It is easy to see that the main reason for the rapid rise in urea prices is the increase in demand from the agricultural sector; in particular, large agrochemical companies made purchases in advance of the Spring Festival, which led to shortages of inventory after the festival, resulting in a surge in orders to replenish those stocks. At present, the upward trend in urea prices in China is slowing down, as downstream users are somewhat resistant to high prices for urea. Firstly, the utilization rate in the urea industry is relatively high, with daily production levels remaining elevated; further increases in these levels could pose certain risks to the long-term market trend. As mentioned above, the daily production volume of urea is around 150,000 tons. With the slowdown in agricultural demand, the growth in industrial demand has kept the production enthusiasm of urea manufacturers high. Especially due to the impact of the pandemic, transportation costs in the distribution process have decreased, which has boosted the willingness of downstream users to place orders. As a result, it is unlikely that urea manufacturers will reduce their production levels under these circumstances ； Furthermore, as the market for liquid ammonia continues to recover, prices of this substance have risen frequently in various regions other than Hubei and the southwest, such as North China and East China. For example, the spot price of liquid ammonia in Langfang, Hebei, has risen to 2,780 yuan per ton, while in northern Shandong, the prevailing spot price ranges between 2,650 and 2,750 yuan per ton. Currently, prices of liquid ammonia in some key production areas are still seeing slight increases. Considering the production and pricing trends of both liquid ammonia and urea, some companies are likely to shift their focus to liquid ammonia production. However, recently the market for liquid ammonia in East China has weakened slightly, with some high prices falling. In Hubei and the southwest, prices remain low, putting pressure on sales. The upward trend in prices of liquid ammonia in East China and North China has slowed down, with smaller increases. Moreover, as transportation gradually resumes, there is a risk that the liquid ammonia market may stabilize and then decline ； Therefore, it is likely that companies will shift their production focus back to urea in the future. Secondly, agricultural demand slows down and turns flat, with industrial demand taking over. Since the urea price rebounded in mid-February due to agricultural demand, coupled with shortages in the end-market, bulk purchases by large agrochemical suppliers, and relatively smooth transportation conditions, the agricultural market has remained stable for nearly half a month now ； Since March, the operation level of compound fertilizers has increased. Coupled with rising prices due to a shortage of raw material phosphate fertilizers, companies have shown high enthusiasm for production, which has led to a significant increase in demand for the raw material nitrogen fertilizer, urea. Driven by industrial demand, urea manufacturers have accordingly raised prices. Once again, the price of ammonium chloride, a type of nitrogen fertilizer, has also increased to some extent, with an average increase of around 30–50 yuan per ton; in some cases the increase was as high as 70 yuan per ton. Moreover, many companies are restricting or suspending new orders. As a result, some companies that produce compound fertilizers or blended fertilizers have turned their attention to urea. The market for ammonium chloride is expected to remain favorable in the future, which provides indirect support for urea prices ； Furthermore, the international urea market is in good shape, with prices having risen to some extent earlier on, which has helped boost the domestic urea market as well. In summary, in the agricultural sector of the urea market, shipments will be the main focus going forward, and goods will also begin to arrive at downstream users gradually, so there will be no need for panic due to shortages ； The demand for agricultural compound fertilizers remains decent, and the slight increase in urea prices can be seen as positive; however, industrial support on its own is limited ； It is expected that the urea market will experience some fluctuations in the short term, but the increases should be minor and limited to certain areas only. Companies should continue to sell their products steadily, being cautious of potential declines in the future. (Tan Junying)