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Urea: 1510! A rebound from the bottom? Author/Source: China Fertilizer Network Date: 2020-03-26 Clicks: 10 After a decline of about ten days, the price of urea has so far dropped by 80–160 yuan per ton. The ex-factory price at a large factory in Shanxi once fell to 1620 yuan per ton; the situation is even worse in Inner Mongolia, where the ex-factory price at a large factory there dropped to 1510 yuan per ton on the morning of March 25. This price represents a low level from before the Spring Festival. Is urea on the verge of a rebound? Let’s first take a look at the decline in prices across the country. In Shandong and Shanxi, the mainstream ex-factory prices remain at 1710–1740 yuan per ton or higher; although transactions at the lower end are at around 1700 yuan per ton, this is still below the psychological price threshold for some buyers. In regions such as Jiangsu, Anhui, Hubei, Sichuan, Northwest China, and Northeast China, prices have only dropped slightly, and it is likely that they will continue to fall further. Looking at the demand situation, we are currently in the interim period between the first and second rounds of purchases for spring demand, and most dealers who already have stock do not plan to order more ； The international and domestic economic conditions are extremely poor, and the demand from power plants and plywood factories is not sufficient to drive growth ； Fertilizer manufacturers will not, for the time being, purchase large quantities of goods as they did at the beginning of their resumption of operations; in Linyi, the price for purchasing urea has dropped from the previous high of 1860–1870 yuan per ton to the current level of 1760–1770 yuan per ton ； The global pandemic is severe; new procurement tenders issued by India on the 22nd have faced obstacles, the costs associated with 14 days of quarantine are high, some Indian ports remain closed until March 31st, and a nationwide lockdown in India will last 21 days starting at 00:00 on March 25th. There are also rumors that this tender process might be postponed. Then there is the supply situation: 160,000 tons per day or more, and this persisted for over 20 days ； The transportation was very smooth, with toll-free highways; however, this factor related to transportation has changed from a positive aspect to a negative one, which means that the various locations where goods are needed are not in a hurry to place second orders for more goods. These factors have led to a continuous decline in urea prices. Now let’s address the key question: although the price of urea is at 1510, it cannot be said that there has been a bottoming out and subsequent rebound. There is some support for demand, though it isn’t very strong: spring demand has not yet completely ended, and the urea supplies that some dealers had in stock were used up during the first round of purchases by end-users; new shipments of urea need to be sent to these end-users by the end of April. Dealers who currently have no stock are starting to become anxious ； Since early March, the resumption of operations in various industries has led to an increased demand for urea by power plants, while the demand from plywood factories has also seen a slight improvement ； The operation rate of large compound fertilizer manufacturers has exceeded 70% ； Especially in regard to the procurement tender in India on the evening of March 21, Chinese urea prices need to drop further in order to be competitive for winning bids; for example, if the price in Shandong drops by another 50 yuan, or if the current price of 1510 yuan in Inner Mongolia comes closer to the export level. Despite the ample supply, manufacturers are not under much inventory pressure for now: once the amount of urea available at low prices reaches a certain level, the very high supply volume can be ignored for a while; however, if there is an excess of urea available at low prices in certain areas, prices will rise. For example, manufacturers in Shanxi and Shaanxi have already seen price increases of 10–20 yuan per ton, while those in Shandong are trying to maintain stable prices. If the price increase shifts from being localized to affecting a wider area, some distributors may not be able to obtain urea at lower prices ； Additionally, highway tolls in some areas might be reinstated by the end of April; if prices remain low enough and supplies can be delivered in a timely manner, this will be beneficial for both buyers and urea manufacturers. In summary, given the sharp drop in international crude oil prices, demand from downstream industries such as power plants and plywood factories for urea will not increase significantly. Agricultural demand is also limited in time. Although industrial compound fertilizer manufacturers are likely to receive large quantities of orders, considering the purchasing power at the grassroots level, these companies will not rush to start producing large amounts of summer fertilizers. With a daily urea production capacity of over 160,000 tons, the urea market is not likely to face shortages for an extended period. It is unlikely that urea prices will rebound sharply; rather, there will be a slow decline accompanied by slight price increases. It would be fortunate if the price increase could exceed 50–80 yuan, so there is no need to have high expectations for now. (Che Yanhong)