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If urea prices continue to drop, will the market suffer in the future? Author/Source: China Fertilizer Network Date: 2020-05-06 Clicks: 42 In the blink of an eye, the May Day holiday has arrived, and unbeknownst to many, the fertilizer market has truly entered the summer phase. The recently concluded spring market can be described as one of mixed feelings: prices for most fertilizers were higher compared to the same period in previous years, yet trading activity remained moderate. The entire process was brief and rushed, as the transition period between the spring and summer markets is rather unclear; the weak market conditions toward the end of the spring season somewhat hindered the increase in demand for fertilizers during the summer. Recently, the overall market trend for fertilizers has been downward. Among these, urea is of particular concern. As of before the holiday, the price of urea in the main production areas of Shandong and the Two Rivers regions remained at 1650–1700 yuan per ton. Demand from both industrial and agricultural sectors was relatively low, and during the holidays, companies tended to hold back shipments. Although new bidding rounds for urea in India have been announced, its actual impact remains to be seen. If this decline in urea prices cannot be effectively halted, not only will the market for high-nitrogen fertilizers face difficulties, but the market for water-soluble fertilizers will also be affected. Firstly, fluctuations in raw material costs. The raw material costs for water-soluble fertilizers are significantly higher than those for traditional compound fertilizers. Generally, the fluctuations in these costs are limited in both magnitude and frequency. However, recently there have been continuous changes in the prices of the raw materials used in water-soluble fertilizers. Taking potassium dihydrogen phosphate as an example, the reference price at factories in Sichuan’s main production areas was around 7,000 yuan per ton at the beginning of this month. The rising price of yellow phosphorus, along with supply constraints, has led to an increase in the price of potassium dihydrogen phosphate; some companies have even started to limit new orders. Not long ago, potassium dihydrogen phosphate also saw a significant price drop due to changes in the market price of yellow phosphorus, with decreases of up to 500 yuan per ton in some areas. It is evident that even just one type of raw material exhibits market fluctuations that are very different from those in the past; as a result, the prices of water-soluble fertilizers are also affected unnecessarily. It becomes even more difficult for companies to determine appropriate discount policies. Secondly, other cost changes. Apart from raw material costs, other types of costs also cannot be ignored. One of the most notable developments recently has been the news regarding the resumption of toll collection on national highways. According to the Ministry of Transport, with the approval of the State Council, tolls on highways that have been approved according to law will be reinstated starting at midnight on May 6, 2020. Previously, in order to balance epidemic prevention and control with economic and social development, tolls on national expressways were waived starting from 0:00 on February 17, 2020. With insufficient remaining free time, freight costs by road transport are set to rise again, posing a significant challenge for companies that produce water-soluble fertilizers. This is because the transportation of such fertilizers relies mainly on road transport over long distances, which increases the cost burden on these companies to some extent. Finally, the increase in market supply. It is self-evident that there is a severe overcapacity in the production of traditional fertilizers. Nowadays, the supply side of water-soluble fertilizers is also facing a significant increase in volume, which further intensifies market competition. One reason for this is the emergence of a large number of small and medium-sized enterprises in this sector; in pursuit of profits, the quality of their products is questionable, yet their prices are significantly lower than those of mainstream brands, leading to an increasing acceptance of such products among end-users ； The second reason is that traditional fertilizer companies are embarking on a path of transformation. For compound fertilizer manufacturers, sticking to old methods alone will only lead to their elimination by the market; therefore, they must focus on developing new types of fertilizers. Therefore, the increase in upstream supply levels also serves as a reminder to the current market to avoid taking reckless actions. In summary, as an important element in driving market dynamics, the trend of urea prices influences the overall market situation. At present, it is unlikely that urea prices will see a significant rebound; therefore, the trends in related fertilizers such as compound fertilizers and water-soluble fertilizers should also be assessed in a rational manner. (Feng Hongyang)