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Analysis of the current supply and demand situation in China’s urea market in 2019, as well as the demand in its various sub-sectors. Author/Source: Date: April 20, 2020. Number of views: 19. Urea, also known as carbamide, is an organic compound composed of carbon, nitrogen, oxygen, and hydrogen. It is one of the simplest organic compounds ever synthesized, industrially produced, and utilized by humans. It is also currently the nitrogen fertilizer with the highest nitrogen content. It is suitable for various soils and plants, and was one of the key factors behind the significant increase in food production in the 20th century. The industrial production technology for urea is already quite mature. Currently, urea is mainly synthesized in industry by combining ammonia and carbon dioxide under certain conditions. In China, ammonia is primarily produced from anthracite, and the production of ammonia is closely linked to that of urea. To date, several large-scale urea manufacturing enterprises with integrated upstream and downstream operations have emerged in the country. I. Statistics on China’s urea production: Before 2015, driven by the increasing use of chemical fertilizers in the country, China’s urea production kept rising. In 2015, the Ministry of Agriculture launched a campaign to achieve zero growth in the use of pesticides and fertilizers, which led to a gradual decrease in the demand for urea as a fertilizer. At the same time, due to the severe overcapacity in China’s urea industry, there are many small and medium-sized enterprises in this sector, which feature low technical levels, high energy consumption, and significant pollution emissions. In 2016, due to domestic environmental protection policies, the advancement of supply-side structural reforms, and high raw material prices, industry production declined significantly. In 2018, China’s urea production reached its lowest level in recent years, at 52.07 million tons, a decrease of 2.4% on a year-on-year basis, with the rate of decline slowing down. In 2019, although the domestic market remained sluggish, the decline in prices improved competitiveness in international markets, leading to an increase in exports and a slight rise in the industry’s annual production volume. In 2019, the production volume of the urea industry in China reached 53.61 million tons. II. Analysis of China’s urea import and export data: In 2019, due to tight domestic supply and conditions in China that were better than those internationally, China’s urea exports amounted to 2.44 million tons, a decrease of 47.53% compared to the previous year; the export value was 773.77 million US dollars ； In 2019, domestic urea exports surged significantly, returning to the levels seen in 2017; however, there was still a considerable gap compared to the export volumes during the period 2014–2016. From January to December 2019, China’s urea exports amounted to 4.94 million tons, representing a year-on-year increase of 102.4% ； From January to December 2019, China’s urea exports amounted to 1,404,719 thousand US dollars, representing a year-on-year increase of 81.5%. In terms of imports, in recent years, due to domestic environmental regulations that restrict production, the reduction of manufacturing capacity, rising costs, the loss of competitive advantages, and shortages of domestic supplies, urea imports have been increasing steadily, with particularly rapid growth in the eastern regions. However, compared to the scale of exports, it remains at a relatively low level. Statistics show that from January to December 2019, China’s imports of urea amounted to 181,507 tons, representing a 10.7% increase compared to the previous year ； From January to December 2019, China’s imports of urea amounted to 46,544 thousand US dollars, representing a 2.4% increase on a year-on-year basis. III. Analysis of the Demand and Price Trends for Urea in China 1. General overview of demand and price smuggling for urea in China. The report \"Analysis of the Development Trends and Future Prospects of China’s Urea Industry from 2020 to 2026\" published by Zhiyan Consulting indicates that, in terms of domestic demand, urea has a wide range of applications, yet the pattern of demand remains relatively straightforward. In China, urea is primarily used in the agricultural sector, which accounts for over 50% of urea consumption; at times this figure even exceeds 65%. Market conditions in sectors such as agriculture have a significant impact on the urea industry. In the industrial sector, areas such as melamine, coatings, plastics, and cosmetics represent the main areas of demand. In 2015, the demand for urea among agricultural fertilizers in China reached its peak, hitting a multi-year high of 56.8476 million tons. Subsequently, as efforts to achieve zero growth in agricultural fertilizer use progressed, the demand for urea in the agricultural sector declined significantly. Additionally, the restructuring of the crop industry from 2016 to 2017 and the weakening of the corn market also had a certain impact on industry demand. In 2018, the demand for urea saw a slight recovery; in 2019, it declined to 48.8515 million tons. Under the pressure of domestic environmental protection policies, the urea industry will undergo accelerated consolidation; companies with outdated technology, high costs, and failure to meet environmental standards will be phased out. **Data from the Statistics Bureau show that in 2018, there were 201 nitrogen fertilizer manufacturers of a certain scale, 52 fewer than the previous year. As a result, the supply and demand in China’s urea industry will remain within a reasonable range, providing support for urea prices. However, the decline in demand in 2019 caused urea prices to remain low throughout the year. Monitoring data shows that in December 2019, the average market price of urea was 1,680 yuan per ton, a decrease of 3.4% month-on-month and 14.7% year-on-year ； The average annual price was 1,892 yuan per ton, a decrease of 5.2%. 2. Demand in the key segments of China’s urea market and prospects for these segments: The agricultural fertilizer market is the most important segment within the urea industry, and it is expected to maintain this dominant position in the future. The agricultural fertilizer market for urea includes pure fertilizer-grade urea, as well as urea used in the production of compound fertilizers. Looking at the long-term development of agriculture in China, the progress achieved over the past 20 years has been characterized by an investment-driven model of agricultural growth. The increase in agricultural output has relied mainly on the use of pesticides and fertilizers, while the growth in animal-based products has depended on the use of veterinary drugs and antibiotics to ensure that these investments yield results. China’s pesticide usage per hectare is approximately four times that of the United States. From 1980 to 2016, China’s fertilizer use quadrupled, with the application rate per hectare being more than three times that of the United States. As food production increases and the use of fertilizers expands, demand for urea grows rapidly, leading to a continuous rise in production and significant instances of redundant construction at a low level. In February 2015, the Ministry of Agriculture issued the \"Action Plan for Zero Growth in Pesticide Use by 2020,\" which helped to curb the upward trend in pesticide use. In 2017, China achieved the goal of maintaining zero growth in the use of chemical fertilizers and pesticides during the 13th Five-Year Plan period, three years ahead of schedule. The demand for agricultural nitrogen fertilizers has also been declining continuously. In 2015, the amount of nitrogen fertilizers used in agriculture in China started to drop, and by 2018 it had reached 20.654 million tons (in terms of pure content). It is estimated that the figure for 2019 will be around 20.253 million tons. The use of compound fertilizers, which offer higher efficiency in nutrient utilization, saw steady growth. By 2015, the amount applied increased from 18.951 million tons in 2011 to 21.757 million tons; it reached 22.688 million tons in 2018, and around 23.195 million tons in 2019. Overall, agricultural fertilizers have always played a major role in the urea consumption structure. In recent years, it has shown a trend of steady decline, but it remains the largest consumer market. Food production is the most important demand in the agricultural sector. In recent years, thanks to improved management and cultivation practices as well as the refinement of seeds, although the planting area of food crops in our country has declined significantly, the total output has maintained a relatively stable growth trend. It is worth noting that the changes in the international situation in 2020 also had a certain impact on China’s food supply. In accordance with a bottom-line thinking approach, Chinese authorities at all levels have introduced various measures and swiftly implemented them in rural villages and towns. These measures aim to ensure grain cultivation while strictly prohibiting land abandonment. According to surveys, major southern grain-producing provinces such as Hunan, Hubei, and Zhejiang have either introduced relevant policies or issued verbal instructions. It is expected that in 2020, both the area dedicated to grain cultivation and the total area under crop cultivation in China will see a notable increase, thereby ensuring a substantial demand for urea. Prices are expected to rise again after May. In the industrial sector, urea is primarily used in the production of melamine; it also has relatively wide applications in cosmetics and pharmaceuticals. Melamine has excellent properties and a wide range of applications; it is currently primarily used in the production of adhesives for manufactured wood products. It is greatly affected by the real estate market. Our country currently has the largest variety of melamine production methods in the world. At present, the melamine market is characterized by an oversupply, with a significant issue of overcapacity. With the tightening of environmental protection policies in our country in recent years, as well as adjustments to the supply side, melamine production capacity has continued to decline, resulting in an increase in the industry’s capacity utilization rate. In 2018, the total domestic production capacity for melamine was 2.2 million tons, with actual production amounting to 1.2872 million tons; thus, the capacity utilization rate was 58.51%. Due to increasing environmental regulations over the past two years, more than 400,000 tons of production capacity have been completely phased out, resulting in significant changes in the industry’s supply and demand dynamics; however, the sector is still in a state of overcapacity. Overall, however, the industry’s production has maintained a relatively stable growth trend, and the demand for urea is also on the rise. In 2019, China’s melamine production reached 1.4232 million tons, a year-on-year increase of 10.56%. The demand for urea was approximately 4.18 million tons. It is expected that China’s melamine production will continue to grow in 2020, with the demand for urea reaching around 4.6 million tons. Overall, China’s grain production has remained stable in recent years, and the relative demand for urea has also been stable. There is expected to be some growth during the period 2020–2021. The demand for urea in industrial applications is increasing gradually, and it is likely to become the main driver of market demand in the future. Thus, China’s demand for urea is expected to maintain a relatively steady growth trend.