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Small market movements in the urea phase: a major trap ahead for compound fertilizers? Author/Source: China Fertilizer Network Date: 2020-07-27 Clicks: 80 In late July, many areas of China entered the traditional rainy season; frequent rainfall caused severe flooding in some regions, resulting in huge economic losses for agriculture. As a result, the fertilizer market slowed down, and the outlook for fertilizer supplies for autumn wheat became increasingly pessimistic, pushing the market into a state of stalemate. At present, there are limited positive factors supporting the price of wheat fertilizers in the coming period. However, the \"unexplained\" rise in the price of raw urea recently seems to offer some hope for fertilizers used in autumn. If it is possible to achieve a price increase or at least maintain stable prices, then the likelihood of a decline in the prices of wheat fertilizers in the future may decrease. The domestic urea market is showing signs of improvement, with slight price increases in some areas. It was thought that after the seasonal peak in domestic agricultural demand, urea prices would stay low forever; yet instead of dropping significantly, they reversed direction, which is puzzling to many. In fact, the factors driving up urea prices are quite clear: firstly, futures markets are influencing the spot market, as recent futures prices reached their upper limits, thereby providing confidence for a rebound in the spot market ； Secondly, there were successive tender calls from India. The urea tender issued earlier by India saw its bid prices not accepted, resulting in a total procurement volume of only 119,500 tons, which was far below expectations; therefore, India issued another tender in an attempt to secure additional supply ； The remaining favorable factors related to supply and demand need to be monitored closely. In general, the price increase of urea is a good thing. However, for compound fertilizers, how many challenges does the autumn fertilizer market still have to face? Firstly, price prospects for the future market are pessimistic. Following the initial phase of market activation, during which some companies held dealer meetings and announced promotional prices for wheat fertilizer to facilitate payments, the pace of downstream payments has somewhat slowed down. Most industry players express pessimism regarding future price trends; in other words, it is likely that wheat fertilizer prices will decline in the latter half of autumn. One reason for this is the unfavorable outlook for raw material markets. Although prices of nitrogen, phosphorus, and potassium raw materials have remained relatively stable over the past week, offering a brief period of optimism, there are no substantial positive factors to support price increases in the long run. As such, a downward trend in prices seems more probable ； The second reason is that fertilizer prices this autumn are much lower than those in the same period last year, and companies frequently offer low prices; there are many cases of using price cuts to increase sales volume. As a result, companies are more inclined to maintain stable prices in the coming period. Secondly, overall demand is clearly weak. The main reason for the stagnation in the autumn fertilizer market at present is the significant issues related to demand; overall demand is weak. Compared with the markets in spring and summer, the period for autumn fertilizers is relatively short. Although little progress was made in July, the available time for the autumn fertilizer market may be far less than expected. One reason for this is the sharp decline in farmers’ enthusiasm for planting, as various force majeure factors affect their agricultural incomes, making them less willing to invest in planting in the future” ； The second reason is market price chaos; the market share of various traditional brands continues to decline, with more people dividing up the overall market, resulting in each person receiving less, and thus demand naturally appears to be lower. Finally, alternative products have advantages. In addition to compound fertilizers, diammonium phosphate is also widely used as a base fertilizer for wheat in autumn; the actual demand for it is significant. Coincidentally, the market conditions for diammonium phosphate in autumn are more favorable, which to some extent affects the sales of compound fertilizers. Recently, the market for diammonium phosphate has seen a slight increase compared to other types of fertilizers. Domestic demand remains strong, and there is a large volume of goods ready for export. Demand for diammonium phosphate in North China is decent, with prices being lower than those of last year; as a result, downstream users are more willing to accept it ； Demand from export markets is increasing, and some companies have orders that can be fulfilled until around mid-August; in other words, the price of diammonium nitrogen fertilizer is likely to remain strong. The alternative product, diammonium, enjoys higher acceptance in terms of price, and its usage rate in traditional planting areas is also high, posing a significant threat to autumn-based compound fertilizers. In summary, although urea prices have risen and the road ahead is challenging, if compound fertilizers are to succeed in turning things around in the autumn, relying solely on temporary price increases in urea is not sufficient to ensure positive developments in the future. As for further stockpiling, distributors should remain cautious. (Feng Hongyang)