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The plans to raise urea prices may fail; the plan to limit ammonium chloride production has also been abandoned. Author/Source: China Fertilizer Network Date: 2020-04-20 Clicks: 17 Recently, apart from urea, ammonium chloride has also seen fluctuations in prices, with a relatively stable trend. Some industry insiders suggest that certain urea manufacturers are trying to manipulate prices; as a result, end-users are not willing to accept higher prices, leading to a situation where there is supply but no demand； According to available information, once the price quotes were released again, the urea market became active; supported by industrial demand, prices for this product rose slightly, by around 10–20 yuan per ton. For example, the current average ex-factory price of urea in Hebei is around 1700–1720 yuan per ton, while compound fertilizer manufacturers in Linyi, Shandong, are purchasing urea at around 1760 yuan per ton. In many areas, the actual transaction prices are not as high as they seem, and the hopes of a price increase may not come true. The situation is the same in the urea market as it is in the ammonium chloride market: companies have few orders pending, and there is little new business coming in. In the domestic market, the supply situation has shifted from a tight balance to an oversupply; coupled with the upward pressure on urea prices to some extent, ammonium chloride prices have been declining slightly. According to a notice issued by the Soda Ash Industry Association this Tuesday, a 30% production cut was to be imposed on companies that produce soda ash; however, this notice was later revoked, and the production cut was changed to a voluntary measure. Firstly, the utilization rate in the urea industry is high, resulting in an oversupply of daily production. According to statistics from China Fertilizer Network, as of now the overall operational rate of urea production enterprises is 57.75%, with a daily production volume of around 162,100 tons. Operational activity is on the rise, and new urea production facilities are set to come online this year, which will increase production capacity and put considerable pressure on the market ； Looking at the current situation, the liquid ammonia market is weak with prices falling sharply on a frequent basis. Although methanol prices have risen by around 200 yuan per ton, they remain well below the cost level; as a result, companies are not yet inclined to shift their production focus to methanol. Considering prices, profits, and inventory levels, it is more likely that liquid ammonia will be converted into urea ； Furthermore, as some urea-producing plants that were under maintenance resume operations, the supply volume will increase again. Secondly, demand remains lukewarm. The agricultural market is in its off-season; the operating rate of industrial compound fertilizer manufacturers is slightly above 60%. The demand for fertilizers during the summer is the main factor supporting urea production ； However, the plywood factories operate with poor efficiency and low production levels, resulting in limited purchases of raw material urea ； On the export side, although there are tenders from India, there has been no sign of speculation or actual support to date; the main issue is that prices are not competitive, and urea exports remain hindered due to the impact of the pandemic ； Domestic large agrochemical suppliers purchase as needed, being very cautious; there are no large-scale centralized purchases, and the overall demand in the urea market remains moderate. Based on the supply and demand situation in the urea market as mentioned above, the market outlook remains bearish, with prices still at risk of falling further. That is undoubtedly a negative factor for ammonium chloride. Moreover, the supply and demand dynamics surrounding ammonium chloride itself are becoming increasingly clear. According to statistics from China Fertilizer Network, as of now the overall operational rate of companies in the caustic soda industry is 74.63%, with a daily production volume of around 37,200 tons. High levels of operation pose significant challenges for these companies. Once the production restrictions are lifted, the reduction in future supply volumes will be limited. However, the ammonium chloride production facilities of a few large manufacturers in Jiangsu will enter maintenance mode next month, which should help alleviate the pressure on these companies to deliver their products ； However, demand remains weak; the overall operational rate of the compound fertilizer industry is gradually declining. After the spring fertilization period ends, some companies, especially those in the Northeast region, will start to take a break to recover, which could lead to further reductions in production. Demand for the raw material ammonium chloride will also decrease in the future. Overall, it is quite likely that urea’s hopes of price increases driven by a slight decline in production and speculation surrounding Indian tenders will not come to fruition. Given the contradiction between oversupply and weak demand, there remains a risk of further price declines ； The production of ammonium chloride is set to decline, and there is still some capacity available across various plants; therefore, inventory pressure is not high at the moment. However, demand remains weak, so it is expected that the market for ammonium chloride will continue to show weakness. Yet, thanks to the available capacity and ongoing production, the degree of decline and slowdown should remain limited for now. The focus should be on the adjustments in plant operations. (Tan Junying)