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Urea price drop intensifies: How much will high-nitrogen fertilizers decline in price? Author/Source: China Fertilizer Network Date: 2020-05-13 Clicks: 44 By mid-May, even in the northern regions where the season progresses more slowly, the spring fertilizer market had already come to an end, and in some areas, the process of stocking up on summer fertilizers was almost complete. Compared to the spring season, the compound fertilizer market in summer is more volatile; trading activities at the retail level have already weakened significantly, and there is very little remaining demand for replenishments. In addition to the relatively weak demand, high nitrogen fertilizer prices have also fallen frequently recently, with corresponding greater discounts offered in some areas for transactions. The prices of high-nitrogen fertilizers are showing a downward trend, mainly due to the surprising decline in the price of urea. Domestic urea prices have mainly shown a downward trend. Currently, the standard ex-factory price of urea in Shandong region is 1,570–1,620 yuan per ton (the same unit applies hereafter). Demand from both industrial and agricultural sectors is growing slowly, while upstream factories continue to produce at high levels. Additionally, the situation in the international market is also concerning, and the results of the long-awaited bidding process were not satisfactory. It is expected that urea prices will continue to fall in the short term. Although the price of urea has dropped by over 100 yuan compared to earlier periods, the decline in the prevailing ex-factory prices of high-nitrogen fertilizers such as 40% chloro-based (28-6-6/30-5-5) remains within expectations; currently, these prices range between 1700 and 1875 yuan in various regions. Firstly, raw material costs fluctuate within limited bounds. At the end of April, the cost of pure raw materials for 40% chloro-high-nitrogen fertilizers (such as 28-6-6/30-5-5) was 1471/1478 yuan (when urea was used); as of now, the cost of such high-nitrogen fertilizers’ pure raw materials is 1410/1419 yuan (using urea), representing a overall reduction of around 60 yuan. Although urea, the main raw material that affects the cost of high-nitrogen fertilizers, has seen a significant price drop, the prices of other phosphorus and potassium-based raw materials are declining at a slow pace. In Hubei, the main production area for monoammonium fertilizers, the factory outlet price for 55% powdered products is between 1800 and 1850 yuan, while the actual price at the factory is between 1700 and 1780 yuan ； The price agreed upon for the large-scale contracts for potassium chloride has dropped significantly compared to last year; the domestic market has not shown any major reaction so far, but further price reductions are expected in the future. Secondly, demand is limited in the middle and later stages. Whether in the spring market or during the summer period, the pace of stockpiling compound fertilizers this year has been faster than usual; often, most of the inventory is accumulated in the first half of the market season, with relatively limited demand for further replenishments later on. At present, in some areas, nearly 70% of the high-nitrogen fertilizers have arrived. One reason for this is the strong market conditions at the beginning of the season – rising urea prices have spurred enthusiasm among downstream users to stock up, while companies tend to hold onto their prices, adopting a strategy of \"buying when prices are high and not buying when they drop\" ； The second reason is the abolition of highway tolls; businesses and distributors are eager to complete shipments and stockpiling before the tolls are reinstated, in order to avoid future increases in shipping costs that would add to their financial burdens. As a result, there is an adequate level of stockpiling on the part of downstream entities. Finally, corporate inventory pressure is limited. As the market for high-nitrogen fertilizers develops, the market for rice fertilizers in the south is also gradually expanding. After all, there is still a strong demand during the summer, and some compound fertilizer manufacturers are receiving orders fairly well. Apart from some leftover stock from the spring season, there is very little pressure related to inventory of summer fertilizers; in fact, a few companies even face slight shortages of supplies. One reason for this is that the gap between the spring and summer markets is short – before shipments from spring have even finished, demand for fertilizers in certain areas already starts to rise, and it does so quite intensely ； The second reason is that production activities in certain regions have recovered slowly; it was only after the pandemic was effectively brought under control that the level of operations began to increase. The backlog of orders from earlier periods included not only those received in advance for the spring season but also orders for winter stockpiling, which inevitably led to a relative shortage on the supply side. In summary, the future prices of nitrogen, phosphorus, and potassium raw materials are not optimistic, which increases the likelihood of further declines in the prices of compound fertilizers. Taking these three factors into account, during the replenishment phase, the prices of high-nitrogen fertilizers are likely to remain stable with only slight discounts available. (Feng Hongyang)