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Is a urea price rebound imminent, or a repeat of 2016? Author/Source: China Fertilizer Network Date: 2020-04-07 Clicks: 7 As is well known, the price of urea has been falling for over 20 days since mid-March. During this period, some urea manufacturers attempted to raise prices on two occasions, but without success. As time goes by, could the price of urea rebound? Or will prices go down in a fluctuating manner, similar to what happened in 2016? The factors contributing to the price drop are as follows: First, a large decline, or the fact that prices have fallen to very low levels, does not necessarily mean that prices will rebound. Urea prices have declined significantly; the cumulative drop has reached 120–190 yuan per ton. For some urea producers, prices are now at or below their pre-Chinese New Year lows. This applies to most producers in Henan and Inner Mongolia, as well as some urea manufacturers in Shanxi and Shaanxi ； However, the prices of some urea manufacturers are still more than 50 yuan per ton higher than the previous lowest levels, such as those of urea manufacturers in Shandong, Hebei, the northeast, northwest, and southwest regions. The recent price cuts are due to urea manufacturers temporarily falling behind in the sales competition. If buyers still have time to make purchases, and if manufacturers do not secure enough orders at low prices, especially if the market continues to be bearish, then even lower prices could occur in the future. Secondly, the lower demand from industry and agriculture as well as export demand compared to the same period in previous years is already evident. Crude oil prices have plummeted, and both export and domestic demand are slightly weak. In January and February, China’s urea exports amounted to 510,000 tons, a 47.6% decrease on a year-on-year basis. The pandemic has resulted in lower orders for industrial plywood factories and power plants compared to the same period in previous years. Although overall orders for compound fertilizer manufacturers were fairly good, with large-scale compound fertilizer producers achieving an average operating rate of over 75%, the current situation is not comparable to the period at the end of February or early March when production resumed on a large scale. Recently, the production of fertilizer for the Spring Festival by these companies has come to an end, and production of summer fertilizers has only just begun. In short, current demand levels have little impact on urea prices. Once again, the supply volume is at its highest level for the same period in the past three years, forcing manufacturers to adopt a pessimistic outlook. Since early March, the daily production of urea has fluctuated at a high level between 160,000 and 167,000 tons; thus, the total urea production for the entire month of March alone was as high as 5 million tons. Given that the daily production of urea is likely to remain above 160,000 tons for most of April, China’s urea exports by March 31 might amount to only 6–7 shipments (with each shipment representing urea transferred to another port), which translates to a maximum of 350,000 tons. The first half of April is also typically a period of reduced demand during the spring and summer season, so urea producers have to be cautious about future prospects. Finally, market participants are worried that the current trend in urea prices might repeat what happened in 2016, namely a fluctuating downward trend in prices; this explains why urea prices have been falling continuously recently. More people are pessimistic about the future of urea prices; therefore, there will be many obstacles to any price rebound. Yet such consistent pessimism can also create opportunities for a rebound in the future. No two leaves are identical, and the situation regarding urea prices will not repeat what happened in 2016. In short, there’s no need for readers to panic too much; even if urea prices keep falling, it is still possible to carry out buying and selling operations at the appropriate times. It’s important to avoid taking excessive risks with large-scale transactions, and above all, to ensure that the goods are in stock. Going forward, there is a possibility of a price rebound. The time for this could be mid-April or slightly later, as mentioned in the previous article on Zhongfei Net. As for the extent of the rebound, it is likely to be within the range of 50–80 yuan at most. The reason for this is simple: before the arrival of summer, demand from industry and agriculture will be lower than in spring, and agricultural distributors will also apply less fertilizer compared to spring. Exports will continue to decline in volume and at lower prices. China’s urea production remains high. Of course, all these factors indicate that it would already be fortunate if prices manage to rebound; therefore, one shouldn’t expect too much of a rise in prices. (Che Yanhong)