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Urea: Price wars are common, but successful exits are rare Author/Source: China Fertilizer Network Date: 2020-06-19 Clicks: 6 Recently, the price of urea in China has continued to fall. Whether this is due to an increase in factory operations or a weak market demand, the reasons are obvious. At present, sales of urea in China are not good, with prices dropping in many regions; the decline is particularly noticeable in North China, East China, and Central China. In Xinjiang, urea prices have risen slightly due to a shortage of supply before returning to stability. From the perspective of experienced distributors at all levels, there is now a more relaxed attitude toward fluctuations in urea prices; purchasing as needed and avoiding hasty purchases is the safety principle adhered to by traders. We are currently in the off-season for agricultural fertilizers, with very limited demand and usage in agriculture; the same is true for the urea market, resulting in increased pressure on manufacturers to sell their products. In the Shanxi region, the price of urea has seen the most frequent drops. Currently, the standard ex-factory price for small-grained urea there is around 1510–1550 yuan per ton, while the standard ex-factory price for large-grained urea is around 1525–1530 yuan per ton ； The supply of urea in the Xinjiang region is slightly tight; currently, the wholesale price in the Gansu region is around 1,550–1,580 yuan per ton. At present, the operating capacity of urea manufacturers is continuing to increase, and we must also take into account the new production capacity that will come online in the second half of the year. As a result, there are frequent concerns in the market about the possibility of another price war. Yet, in such price wars without any direct confrontation, it is rare for anyone to emerge unscathed. Firstly, the production activity of urea manufacturers is picking up again, though it is unlikely to rise too much; however, new production capacity does require attention. Urea production facilities in Anhui, Henan, and the Northeast that underwent maintenance earlier have begun to resume operations one after another; the level of activity in these urea plants is slowly increasing. According to statistics from China Fertilizer Network, as of now around 54.1% of these plants are operational, with a daily production volume of approximately 151,900 tons. A large factory in Shandong plans to suspend operations for a short period over the weekend, so there is no significant upward trend in overall production levels for now ； However, with the second half of the year already underway, it is essential to pay attention to the progress of the commissioning of new urea production capacity. This includes the additional production capacity of a few large manufacturers in Shandong, Jiangxi, and Hubei provinces. shipments are expected to begin by the end of this month at the earliest, or around October at the latest; it is necessary to be cautious regarding the potential increase in urea supply surplus over the long term. Secondly, it is the off-season for the fertilizer market, with moderate demand. At present, the limited amount of top-dressing used in agriculture provides only modest support for urea demand; as a result, retailers in the local market purchase only small quantities or place additional orders. Compared to the production capacity of urea manufacturers, this amount is truly negligible ； Before the products are made available on the market, large traders purchase them as needed; some buy them solely based on price, and there is a lack of large-scale purchases that could provide support to the market ； In the industrial sector, there has been a continuous decline in the operating rates of compound fertilizer manufacturers; the pace of purchasing raw materials has slowed down and the quantities purchased have decreased. According to statistics from Zhongfei Net, as of last weekend, the overall operating rate of these companies had dropped to around 42%. It is easy to imagine then how limited the amount of raw materials they purchase is. On top of this, the plywood factories continue to operate at a level that can be described as unstable, with a weak overall market situation and low enthusiasm among companies for production; as a result, the amount of urea purchased is also limited ； As for the Indian market, which is also of great interest, although international prices are rising, the volume of exports remains limited. Moreover, there is a risk of changes in the Indian market in the near future, which would have little impact on boosting the domestic urea market. Once again, although there is a clear imbalance between the supply and demand of urea, as well as the impact of new production capacity, there are also positive factors at play. Liquid ammonia, which is closely related to urea, plays a key role here; the domestic liquid ammonia market has seen a recovery. As urea manufacturers resumed operations, the liquid ammonia market also rebounded, and prices in certain areas have continued to rise slightly. For example, in regions such as North China and East China, liquid ammonia prices have increased by around 200–300 yuan per ton. If urea manufacturers face excessive pressure, they may shift part of their production to liquid ammonia, thereby alleviating some of the pressure on urea shipments. Additionally, the price of ammonium chloride, a minor nitrogen fertilizer, remains strong, which also provides some support for the urea market. In summary, although the possibility of transferring ammonia could be beneficial, and it isn’t ruled out that some urea production facilities might temporarily reduce their output due to the high temperatures in summer, the oversupply in the urea market is unlikely to ease in the short term. A downward trend in prices is inevitable in the near future, though the extent of such a decline should be limited. (Tan Junying)