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Is a 100 increase in urea price a cause for celebration for everyone? Author/Source: China Fertilizer Network Date: 2020-05-28 Clicks: 6 As is well known, the expectation of an increase in urea prices during May Day was mainly due to rising shipping costs; people would make payments in advance in order to avoid the resumption of tolls on highways on May 6th. The fact is that the price of May Day urea failed to rise; instead, it kept declining. On May 12, the ex-factory price in Shandong dropped to 1,560 yuan per ton. The industry initially expected the price of urea at the factory to drop to 1,500 yuan per ton by the end of May. The fact is that large companies such as Sinochem take the lead in purchasing these products; once the prices rise above what was expected, they start to recover. Since May 13th, the ex-plant price of urea in Shandong has increased by nearly 100 yuan in total. In short, this increase in urea prices came earlier than expected, happened more rapidly than anticipated, and the magnitude of the rise was also greater than expected. What are the specific reasons for this? And why is it said that a 100% increase is something to be celebrated? Firstly, compared to 2019, dealers’ attitude toward operating the summer market can be said to be a bit better. Firstly, the price is much lower than that in the same period of 2019; it’s possible to take action or not, and of course, taking action may yield some profit. Secondly, looking back at the spring market, prices rose early in spring and fell early as well, leaving a long period of time with no price changes; in other words, the period of declining prices that began on April 15 was relatively long, giving people time to stock up on goods. Thirdly, what should be done after obtaining the goods? Of course, the manufacturer should raise the price as well, so that it becomes easier to sell these goods. Secondly, there is still strong demand in the industrial sector, while agricultural demand is performing well. Although industrial demand is lower than it was during the same period last year, both power plants and compound fertilizer manufacturers are more enthusiastic about taking on orders, which is a slight improvement compared to last year. Although many plywood factories have stopped operating, those that still receive orders are continuing to function. After all, as long as operations are underway, there is profit to be made, or in other words, there is a brand presence, so the enthusiasm for purchasing urea isn’t that low. Furthermore, **there is a focus on food security and agriculture; there are not many opportunities for investment in other sectors. As a result, some investors direct their funds toward agriculture, that is, by purchasing urea to sell it during periods of high demand and thus earn profits. Once again, exports have little impact on domestic prices for the time being. Following the bidding process in India, it can be seen that there are slightly more suppliers internationally who are unwilling to supply goods to India at low prices; as a result, the ex-ship price of urea exported from our country is currently separate from the international mainstream ex-ship prices. In particular, it was announced early on that before mid-June, India might issue new tenders. There are also a few more intermediaries who approach things with a gambling mindset. Finally, and most importantly, there is a slight reduction in urea supply. In previous years, urea producers would begin maintenance work in mid-April or early May. This year, however, it was postponed to mid- to late May; that is, the maintenance only started recently, thereby creating favorable conditions for a rise in urea prices. A price increase is still an increase, but a rise of 100 is truly beneficial for everyone; if the prices keep rising further, that would probably be excessive. To be honest, we have to admit that the reason why urea manufacturers are raising prices so slowly this time is that they do so only after receiving payments at lower prices; there are really very few new orders at higher prices. Moreover, during the price increase period, urea manufacturers slowed down their shipping speeds to the greatest extent possible. Another noteworthy point is that the price increases occurred at just the right moments. Firstly, coal prices rose by nearly 100 yuan; in other words, the cost of urea increased by roughly 40 yuan. Secondly, the extent to which the factor market was viewed pessimistically earlier, and the limited preparation made for the summer market, created a significant opportunity for these price increases. Thirdly, raising prices in advance is the best way to do so – it allows one to take offensive actions as well as defensive ones. Some industry insiders joke that since the poor conditions in the urea market are expected in the second half of the year, it’s necessary to make an extra effort this time to raise prices further. In short, price increases have been ongoing for half a month now; those manufacturers whose prices haven’t risen much still have some room for adjustment, but that window is almost closed – it might not be advisable to order more goods at this point. I just hope that all the goods purchased earlier can arrive in time so they can be sold promptly. A rise of nearly 200 in spring and 100 in summer is quite reasonable; achieving a balanced situation where buying and selling complement each other is what would truly bring satisfaction to everyone. As for the positive factors such as more urea manufacturers undergoing maintenance in June, these still need to be observed. ( Che Yanhong)