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Urea prices are about to drop! Is continuous decline an inevitable outcome? Author/Source: China Fertilizer Network Date: 2020-04-20 Clicks: 16 Since the Qingming Festival holiday, that is, from April 7 to the present, urea prices have been rising gradually; the ex-factory prices offered by manufacturers in Shandong’s Lianghe region, Shanxi, Jiangsu, and Anhui have increased by 20–50 yuan per ton ； Compared to the increase that started in mid-February last time, what is similar is that it was due to urea manufacturers collecting lower prices initially; what is also similar is that the manufacturers initially only raised prices on a tentative basis. The difference is that this time there was actually significant volume of transactions during those first couple of days when the prices were raised, while this time it was caused by a few manufacturers temporarily reducing their production capacity, and the duration of this situation was shorter. Since April 13th, although the low-end ex-factory prices in Inner Mongolia have risen from 1,470 yuan/ton to 1,510 yuan/ton, the quotes and actual transaction prices of a few urea manufacturers in Shanxi, Jiangsu, and Shaanxi include a reduction of 10–30 yuan/ton. This is either because these manufacturers have more orders available at lower prices, or because they sell their products as they produce them, resulting in a slowdown in sales. It is understood that urea prices are about to drop! A decline is now inevitable, and the extent of that decline could exceed the increase this time! But there are no signs of a continuous decline for now. The reasons are as follows: First, domestic demand remains insufficient. The spring fertilizer preparation market has largely come to an end; in the areas where it hasn’t ended yet, people are simply waiting for supplies to arrive. The summer fertilizer preparation market started a bit earlier, but this is not enough to drive up urea prices continuously, let alone cause a significant increase in those prices. It is worth noting that the poor industrial demand mentioned several times in previous articles has become a reality. Due to the pandemic, plywood factories in some areas have stopped operating because of poor export performance; power plants are also seeing limited orders. The operation rate of compound fertilizer manufacturers has dropped to around 60.78%, a decrease of 13 percentage points compared to the peak period during the spring demand season. Secondly, export volumes and prices remain somewhat detached from each other. In India’s urea procurement tender that concluded on March 30, the FOB price from China was only 245 dollars per ton, while the port price was around 1,711 yuan per ton. Moreover, the amount of urea produced in China was merely 285,000 tons, compared to a daily production of over 160,000 tons (with occasional drops); the average monthly production for April was thus around 5 million tons, which is a negligible amount. Although India may hold new tenders for urea purchases by the end of April, the extent of the impact of locust plagues on crops in India remains uncertain, so the volume of new tenders in India is likely to be low. Even if a large volume of tenders is issued, they will be aimed at supplying urea to the ports along India’s west coast; the shipping costs from our country to that region are higher, so the winning bid prices are likely to be lower than China’s ex-ship price for urea. Thirdly, it is highly likely that the supply volume will be on the high side. In mid-April, a slightly higher number of plants experienced short interruptions in operation due to minor issues; around seven or eight such plants, which is expected, as usually starting from mid-April, some urea manufacturers begin their annual maintenance work. According to statistics from Zhongfei Net, only on a few occasions did the daily total production of urea drop to 156,000–158,000 tons; most of the time, the daily production remained as high as 160,000–163,000 tons. It is worth noting that natural gas prices have dropped, and coal prices have also fallen since the Spring Festival, by about 200 yuan in some cases. Given that current urea prices are similar to the lowest levels seen after the Spring Festival, urea manufacturers enjoy decent profits. Going forward, aside from a few urea plants that will be forced to shut down due to equipment issues, they will not carry out annual maintenance repairs; instead, they will try to delay such repairs as much as possible. As a result, the overall supply volume will remain high. In summary, a drop in urea prices is imminent; it could happen next Monday or by the end of next week – it’s very close ； Buyers in areas where there is an ample supply on the platform can wait, and they might even see manufacturers of urea make significant price concessions once fees are reinstated at higher levels. In other words, most urea buyers are likely to be in a favorable position; if they are not in urgent need of the fertilizer, they can wait for lower prices. However, it is important to pay attention to how those urea manufacturers with many pending orders plan to proceed. One uncertainty is whether tolls on highways will resume in May or June, and buyers who are in urgent need of the fertilizer can also take advantage of these price reductions to make their purchases. ( Che Yanhong)