Urea is still falling – are you sure you won’t take any?

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Urea supply continues to decline; is it really not worth purchasing? Author/Source: China Fertilizer Network Date: July 21, 2020 Clicks: 117 As the hot summer season arrives, the market for urea as a top-dressing fertilizer is gradually coming to an end, with prices falling to varying degrees in different regions. In Shandong, the standard ex-factory price for urea is 1,600–1,630 yuan per ton. In Linyi, compound fertilizer manufacturers are willing to purchase urea at 1,630–1,650 yuan per ton. In Hebei, the standard ex-factory price for urea is 1,600–1,610 yuan per ton, while in Henan it’s 1,620–1,630 yuan per ton. In Xinjiang, the standard ex-factory price is 1,230–1,350 yuan per ton, and the price for urea exported from Xinjiang is even lower, around 1,150 yuan per ton. Many people are pessimistic about the future of the urea market, and the bidding process in India doesn’t bring any positive developments either. The lowest bid prices are 240.50 US dollars per ton at ports on the East Coast, and 242.50 US dollars per ton at ports on the West Coast. The total amount bid for is 2.057 million tons. Some speculators have suspended their purchases, but at present, some industry professionals continue to buy urea despite knowing that prices will fall in the future. There are several reasons for this: Firstly, they are forced to purchase urea in order to maintain an average cost over the whole year. As is well known, the demand for urea in many regions has essentially come to an end. However, there is still a demand for urea during both the autumn and winter storage periods. Although urea prices are showing signs of decline at present, it is not practical to purchase all the required amount of urea before these periods arrive, as demand will already be high by then and prices will inevitably rise. Moreover, the available supply of urea will be limited, which could affect production plans. On the other hand, when purchasing urea now, there are no restrictions on the quantity ordered; if a larger quantity is purchased, it is possible to negotiate the price with the manufacturers. This approach can help some compound fertilizer manufacturers keep their average annual cost of urea at a relatively low level. 　　Secondly, the increase in production was lower than expected. Although, based on this year’s production plans of urea manufacturers, it should not be a problem for the country’s daily urea production to reach 170,000 tons, at present the actual daily production volume in China is only around 150,000 tons. Even if some urea manufacturers resume production in the future, some of them still plan to suspend or limit production from late July to early August. As a result, the supply of urea over the next month is likely to remain below 5 million tons, which is slightly less than the same period last year. The overall supply pressure related to urea is therefore not very high, and prices are also lower than they were during the same period last year. Hence, some downstream markets believe that even if urea prices drop in the future, the extent of such drops is likely to be limited. 　　In summary, at the current stage, due to insufficient market demand, urea prices show signs of declining in the future. Additionally, some companies that had ceased production for a long time have started operating again recently; therefore, a decline in urea prices is likely to become the norm. Some downstream markets are waiting for prices to reach their lowest point before considering purchases, while other distributors have already begun to buy urea. It is expected that urea prices will continue to fall in the near term, though the overall decrease is likely to be modest. Distributors engaged in short-term trading do not need to make any purchases at this time. 　　(Wu Wenchao)