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Urea has officially started to fall – will it keep dropping all the way? Author/Source: China Fertilizer Network Date: 2020-03-17 Clicks: 18 It is mid-March, and as expected by most industry insiders, urea prices began to drop significantly starting from March 16. What had been a gradual decline last week turned into an explicit drop in prices at the beginning of this week. Since the weekend, the ex-factory prices of urea manufacturers in Shandong’s two river regions have fallen by 20–40 yuan per ton, to between 1760–1780 yuan per ton; transactions are possible at these prices. Prices in Shanxi, Jiangsu and Anhui, the northwest, southwest, and Guangdong and Guangxi regions have also seen varying degrees of reduction, while manufacturers in the northeast have maintained stable nominal prices but seen hidden declines in actual costs. The main reasons for the decline are supply-demand imbalance, a weakening tendency to drive up prices, and a weak overall economic environment; the only possible source of support is exports. Imbalance between supply and demand: The rise in urea prices that had occurred since mid-February due to a slight delay in agricultural demand and the resumption of operations by industrial enterprises has temporarily come to an end. The first round of agricultural demand and fertilizer preparation in many areas is now complete, and the period of concentrated resumption of operations by industrial enterprises has passed; as a result, there will be no significant purchasing activity from either the industrial or agricultural sectors in the short term. Moreover, over time, it is becoming apparent that industrial enterprises’ demand for urea this spring is lower than it was during the same period last year ； The production of urea itself has recovered very rapidly; the daily output reached 150,000 tons at the beginning of March, and it has since reached 160,000 tons as of March 10. There is little possibility of a reduction in production by the end of the month. Given the large volume of urea arriving in various regions recently, and especially the fast pace of these deliveries, demand is declining while supply is increasing, which has led to a drop in urea prices. The drive for price increases is weakening: At the beginning of March, large state-owned agrochemical companies received substantial amounts of special loan funds, which allowed them to purchase large quantities of fertilizers. As time goes by, this pattern of bulk purchases by these companies has ceased; however, there will still be new purchases. Whether it’s through these special funds or new purchases, the goal is to support spring plowing activities, and this should ultimately ease the pressure on buyers and result in a slight reduction in prices ； Speaking of which, during the pandemic, tolls on highways were waived. Since the cost of urea is generally determined based on the price at the time of delivery, and considering the shortage of inventory in markets across the country at first, buyers were willing to pay higher prices as long as they could obtain the product. The reduction in shipping costs was initially beneficial for sellers. Over time, however, as there was less shortage of goods, buyers took advantage of these lower shipping costs to pressure manufacturers to reduce their prices ； Finally, and most importantly, the end-users have received some urea, and the urgency associated with potential shortages of urea has diminished. Both buyers and sellers are now in a stalemate, which indicates that the surge in urea prices has temporarily come to an end. The overall economic environment is weak: crude oil prices have dropped sharply, as have the prices of chemical products. The manufacturing sector is recovering slowly. Power plants, which are one of the end-users of urea, are expected to purchase less urea than in the same period in previous years. Plywood factories, on the other hand, are also operating at reduced capacity due to the downturn in industries such as real estate and construction, resulting in lower demand for urea compared to the same period in previous years ； The prices of urea-related products such as liquid ammonia have only improved to a certain extent, and it is still unknown when more liquid ammonia will be produced and less urea. At first glance, urea prices are not likely to drop to rock bottom; instead, they will fall gradually. We’ll have to wait and see once the manufacturers start fulfilling their pending orders. Especially considering the favorable export conditions mentioned at the beginning of this article – indeed, the offshore price of urea in the Middle East has risen above $255. India may also issue new procurement tenders this week. Although each time there is a situation where demand exceeds supply, or where prices have to be sacrificed to secure a certain volume of orders, it is still possible to engage in some speculation and sacrifice prices in order to win part of the orders. Another reason why prices won’t drop to rock bottom is that the demand for urea in spring accounts for over 60%, or even 70%, of the annual demand. There are many people involved in the urea market, so prices are unlikely to fall too sharply. Additionally, the prices of other nitrogen-based fertilizers such as ammonium chloride, ammonium sulfate, carbon ammonium, and liquid ammonia remain stable, so they won’t pose a significant burden on urea prices for now. (Che Yanhong)