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Supply and demand imbalance: Urea prices reach a bottom Author/Source: China Fertilizer Network Date: July 6, 2020 Clicks: 9 At the beginning of the week, urea prices in regions such as Shandong and the Two Rivers areas saw a rise, but due to relatively limited market demand, overall prices only increased slightly. Currently, the standard ex-factory price of urea in Shandong is 1,580–1,600 yuan per ton. In Linyi, compound fertilizer manufacturers are purchasing urea at 1,630–1,650 yuan per ton. In Hebei, the standard ex-factory price of urea is 1,580–1,630 yuan per ton, while in Henan it is 1,620–1,630 yuan per ton. In Shanxi, the standard ex-factory price of urea is 1,530 yuan per ton, with larger-grained urea costing 1,520 yuan per ton. Most factories still have supplies available at present, but prices of urea in some areas with lower prices have shown signs of weakening. For example, the price of urea exported from Inner Mongolia has dropped to around 1,360 yuan per ton, while in Sichuan, certain high-end prices have also fallen by 80 yuan to around 1,620 yuan per ton. In Xinjiang, the local ex-factory price of low-quality urea has dropped to around 1,290 yuan per ton. Although some compound fertilizer manufacturers have started collecting payments in advance for autumn production, and there is still demand for urea, most urea producers say that the overall market condition is poor, and prices may continue to fall in the future. The main reasons for this are as follows: First, overall market demand is relatively weak. The market for top-dressing in the northeast and northwest regions has essentially come to an end. Although there is still demand in the central plains area, as well as for corn top-dressing in the later stages, the overall volume of such demand is relatively low. The overall demand from fertilizer factories and power plants this year is also fairly modest. What determines the trend of urea prices in the main regions at present is the procurement of raw materials for compound fertilizers in the near term. However, the overall trend for urea prices is currently unfavorable; therefore, compound fertilizer manufacturers will not enter the market to make large-scale purchases at this stage. The time to buy at lower prices has not yet arrived, and the favorable conditions offered by manufacturers at present do not seem to attract much attention from the market. Moreover, most urea manufacturers still have a certain margin of profit at the current price levels. As a result, it is expected that urea prices will continue to decline in the future. Secondly, there is significant supply pressure in the later period. According to the Nitrogen Fertilizer Industry Association, during the periods of severe air pollution in the autumn and winter of 2020–2021, production by coal-based nitrogen fertilizer manufacturers in the 2+26 key cities, as well as in regions such as the Fenwei Plain, the Yangtze River Delta, and the Beijing-Tianjin-Hebei area, will be subject to tiered control measures. As a result, the overall supply of urea during those autumn and winter months is expected to decrease by around 1.2 million tons. Although there was slight production reduction in the later period, the overall supportive factors were relatively weak. At present, the daily urea production is less than 150,000 tons; however, starting from mid-July, not only will the companies that stopped production recently resume operations, but some companies that have been shut down for a longer time will also restart production. Moreover, new equipment in factories in regions such as Shandong and Hubei is set to come online in the third and fourth quarters of this year. Based on current data, if production can resume on schedule, the daily urea output in the second and third weeks of July could reach around 170,000 tons, resulting in relatively high supply pressure and negative prospects in the future. In summary, urea has performed poorly recently; market demand is relatively low at the moment, while supply pressures are relatively high in the future. It is expected that urea prices will continue to decline in the near term. (Wu Wenchao)