The urea level drops too quickly, just like a “tornado””

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Urea prices dropped too rapidly – like a ‘tornado’ Author/Source: China Fertilizer Network Date: 2020-03-20 Clicks: 63 After mid-March, domestic urea prices declined suddenly. Urea manufacturers, still having received advance payments, were not prepared for this price drop, while large traders were also confused and could only try to reduce their inventory levels. Both suppliers and end-users accepted the fact that the urea market had weakened. Currently, urea prices in the domestic market are continuing to decline. Although India has recently issued new tender notices, these have not brought any substantial benefits to the industry, and it seems unlikely that prices will stop falling for now. Manufacturing companies are facing increasing sales pressure, traders have reduced their enthusiasm for purchasing, and end-users are also resisting products with high prices. 　　This year, the market situation for fertilizers is different from previous years. Due to the impact of the pandemic, panic-driven purchasing in the domestic market caused the market trend to develop earlier, resulting in an earlier end date as well. Currently, urea production is picking up again, which has led to a decline in prices. For example, the purchase price of urea by compound fertilizer manufacturers in Linyi, Shandong Province, has dropped to around 1800–1810 yuan per ton. In some areas of Hubei, the wholesale price of urea has fallen by 30 yuan per ton, to around 1950–1960 yuan per ton. Even the reference price for large-grained urea delivered to certain areas in Heilongjiang has dropped from 2150 yuan per ton earlier on to 2070 yuan per ton. Meanwhile, there is a situation of inverted prices in the southern market. Many manufacturers express concern that urea prices are falling too rapidly, like a tornado. Given the clear imbalance between supply and demand for urea, its price trend has become a focus of attention within the industry. 　　Firstly, starting production at high levels is a risk that urea manufacturers must be vigilant against. According to statistics from China Fertilizer Network, as of now the overall operational rate of urea production plants is around 56.76%, with a daily production volume of approximately 159,300 tons. The sharp rise in urea prices earlier on prompted these plants to start operating at full capacity promptly. The demand for urea continues to support these plants’ enthusiasm for production ； A few urea production enterprises in the Northeast and Henan provinces that have suspended operations say they plan to resume production in the near future ； At the same time, due to the overall economic conditions, fertilizer manufacturers are facing poor profitability; they can only operate at full capacity in order to alleviate their pressures ； At present, in the liquid ammonia market, aside from price declines in Henan and Shanxi provinces, prices overall are on the rise. In particular, the price of liquid ammonia in Hubei has increased by another 150 yuan per ton, reaching around 2750–2800 yuan per ton at the factory gate. If urea prices drop significantly in the future, some companies will certainly shift their production focus to liquid ammonia, which will help alleviate the pressure on the urea market caused by high levels of production. 　　Secondly, as demand gradually cools down, it is only natural for urea manufacturers to engage in price wars. It must be said that the rise in urea prices represents a concentrated release of pressure in the agricultural market. The practice of purchasing supplies as needed earlier on led to a shortage of available stock, and coupled with previous transportation constraints, the purchasing behavior in the downstream market became somewhat \"panicked\". At present, agricultural demand is declining; local communities are highly resistant to high-priced urea. Additionally, there is also a tendency to reject high-priced urea in favor of cheaper options ahead of the Spring Festival ； Whether it’s the ability to purchase supplies as needed in the early stages or the need for stockpiling during the spring plowing season, large agricultural supply companies now have sufficient supplies of urea, and their enthusiasm for placing new orders has declined ； Purchases by industrial compound fertilizer manufacturers continue, and in particular, the resumption of production by such manufacturers in Hubei Province has had a positive impact on the market. However, the overall demand from the industrial sector remains limited ； Plywood factory operations have started to recover, with modest purchases of urea. 　　Once again, the minor nitrogen fertilizer ammonium chloride also affects urea to a certain extent. Ammonium chloride manufacturers have ample orders pending, and prices remain high. Although its momentum is somewhat weak, supply is still tight compared to urea; hence, urea has an advantage due to its abundant supply. 　　Finally, international urea prices remain reasonable. Reports suggest that the new bidding deadline in India has been slightly delayed, but it is expected to be announced this month; the quantity to be purchased could reach 1 million tons. This undoubtedly provides a positive factor that helps boost prices or fuel speculation in the domestic urea market at this time. 　　In summary, the rapid shift in urea prices from an upward trend to a downward one was caused by various factors. As production of urea resumes to increase and demand gradually slows down, the positive factors will diminish. Relying solely on stock replenishment and tenders in India is unlikely to lead to any real improvement. It is expected that urea prices will inevitably decline despite remaining strong in the near term, though the degree of decline is likely to be modest. (Tan Junying)