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Changes in urea supply and demand: Price drops begin to appear Author/Source: Date: 2020-03-16 Clicks: 7 According to data from China Fertilizer Network, this week, apart from the Xinjiang region, the sharp rise in urea prices was curbed in many areas; in some regions, there were even signs of a decline in urea prices. Currently, the standard ex-factory price for urea in Shandong is 1810 yuan per ton. In Linyi, compound fertilizer manufacturers are purchasing urea at prices ranging from 1830 to 1840 yuan per ton. In Hebei, the standard ex-factory price for urea is 1780–1800 yuan per ton, while in Henan it is 1790–1810 yuan per ton. In Xinjiang, the standard ex-factory price for urea is 1570–1660 yuan per ton. In Sichuan, urea prices dropped by 50 yuan, to between 1850 and 1930 yuan per ton. In Heilongjiang, the price of large-grained urea at delivery points also fell from 2170 yuan to 2140 yuan or less. The upward trend in urea prices has come to an end, and the main reasons for this are as follows. First, products are gradually arriving in markets across the region. The main reason for the sharp rise in urea prices earlier on was disruptions in transportation, low inventory levels in the market, and a surge in demand, which led to rising prices. However, as transportation gradually resumed, there was an increase in supply in markets across various regions. Although there is still a certain demand gap in the market, there is sufficient inventory available at all stages to meet that demand, thus alleviating it to some extent. The market’s tolerance for high prices has decreased, and transactions at excessively high prices have become difficult. Additionally, as companies’ pending orders are being fulfilled, some factories have seen their prices drop slightly in order to ensure a steady supply in the future. Secondly, market supply is gradually increasing. As the urea production facilities have started to operate at full capacity more recently, the daily output of urea has exceeded 160,000 tons this week; at present, it stands at 159,600 tons per day. Some large-scale plants in Shanxi have resumed operations, while some gas-based enterprises in Inner Mongolia are about to start producing from their second units. Additionally, a few factories in Guizhou also plan to resume production on March 20. As a result, supply pressure will increase further in the future. Meanwhile, market demand has decreased compared to earlier periods. With this increase in supply and decrease in demand, prices are likely to fall as well. Finally, the increases vary between upstream and downstream sectors. Due to this concentrated release of demand, urea manufacturers have seen their prices soar continuously. Although prices at the downstream end have also increased, the overall increase is relatively small. For example, the price of large-grain urea in Suihua, Heilongjiang, was 2170 yuan previously, but sales were poor; the prices available on the market are only around 2110–2120 yuan. Prices higher than this are not well accepted by the downstream market. Some large-grain urea producers say that although there is still demand in the Northeast region at present, it will be difficult to sell products at such high prices in the short term. On top of that, supply pressures are increasing, which may lead to further declines in market prices. In summary, at the current stage, demand in many areas has temporarily ceased, but demand will still exist in the future, especially in the Northeast region where there is still demand for large-grained urea. However, the supply and demand situation for urea has already changed to some extent, and the likelihood of price increases similar to those seen during the pandemic is relatively low. It is expected that the markets related to urea, both upstream and downstream, will enter a period of competition in the future, with downstream parties taking more initiative; prices may continue to fall. Yet, since demand still exists, the potential for further price drops is likely to be limited. (Wu Wenchao)