Several necessary conditions confirmed by the rise in urea prices

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Several Conditions Necessary for a Confirmation of Urea Price Increases Author/Source: China Fertilizer Network Date: May 25, 2020 Clicks: 4 Recently, there have been signs of further price increases for urea in some regions. Currently, the standard ex-factory price of urea in Shandong is 1610–1620 yuan per ton (the same unit applies below). In Linyi, compound fertilizer manufacturers are offering a purchase price of 1660–1670 yuan per ton for urea. In Hebei, the standard ex-factory price is 1620–1650 yuan per ton, while in Henan it is 1610–1630 yuan per ton. In Shanxi, the standard ex-factory price is 1550 yuan per ton, with larger-grained urea costing 1540 yuan per ton. In Heilongjiang, the standard ex-factory price is 1590 yuan per ton. Prices in the northern markets are starting to rise, but the southern markets remain relatively stable; in fact, some factories in Yunnan have even reduced their prices significantly. Given the current market situation, sales volumes at higher prices in the northern markets are also relatively low. Therefore, this increase in urea prices has not yet been confirmed. So what kind of market conditions can be considered stable? 　　Firstly, the operation of urea production was effectively reduced. Since 2020, the overall supply of urea has increased significantly compared to the previous year. To date, the daily production volume of urea has risen to over 160,000 tons and has remained above this level for an extended period, resulting in considerable supply pressure in the market. According to feedback from some factories, some enterprises will resume production or increase their urea production capacity in the second half of this year. In order to meet their production targets, these companies are unlikely to reduce their overall supply levels easily. To ensure the flow of urea and the circulation of funds, prices are likely to continue to fall. Given this situation, and in the absence of a significant increase in demand, prices will keep dropping. Once they fall below the cost level, the operation of some factories may be affected. However, at present, the gross profit margin for urea remains between 200 and 300 yuan. Based on the current market conditions, urea production is not expected to see a significant decline in the coming months. 　　Secondly, the overall environment for fertilizers is improving. Recently, the sales of summer fertilizers have begun to pick up gradually. However, the overall price trend for such fertilizers is declining. Although high-nitrogen fertilizers are the main types sold during this period and there is a demand for top-dressing, this demand lasts for only a short time and the amount required is not large. The industrial market is performing fairly poorly; the overall price of melamine has dropped by almost half compared to the same period last year. The demand from board manufacturers and power plants is not significant. It is expected that there will be no real upward trend in the price of urea in the short term.

In summary, although the urea market is performing relatively well in some areas, and some factories are able to sell products at higher prices due to rising prices of thermal coal, there is no pressure on sales at present. Although prices have risen in the northern market and there is no sales pressure, it is likely that this increase will not last long, and the extent of the increase will be limited. The main reason for this is the limited market demand; there is only a moderate demand for top-dressing in the agricultural sector, while the demand in the Northeastern region for top-dressing is decreasing, and again, this demand lasts for only a short time ； On the other hand, there is the well-known issue of an excessive supply of urea. As we move into the second half of 2020, some companies will resume production, resulting in high overall supply pressure, while actual market demand remains relatively limited. It is expected that urea prices will only experience slight fluctuations in the near term. 　　 　　(Wu Wenchao)