Urea isn’t slow in the off-season – will it be sluggish in the peak season?

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Urea isn’t slow in the off-season – will it be sluggish in the peak season? Author/Source: China Fertilizer Network Date: 2020-08-10 Clicks: 4 Recently, driven by sustained demand in the international market, domestic urea prices have continued to rise. Measures such as suspending sales and making successive price adjustments have been adopted; even some distributors in the Northeast region have become active, with an increase in inquiries and purchase volumes. Currently, the mainstream ex-factory price of urea in Shandong is 1740–1760 yuan per ton. In Linyi, compound fertilizer manufacturers are purchasing urea at 1750–1770 yuan per ton. In Hebei, the mainstream ex-factory price of urea is 1760 yuan per ton, while in Henan it is 1720–1730 yuan per ton. In Shanxi, the mainstream ex-factory price of urea is 1640 yuan per ton, with large-grained urea costing 1680 yuan per ton. The current market situation is one where agricultural demand for urea has declined, and we are in the production phase for high-phosphorus fertilizers in autumn. Although there is industrial demand, its volume is relatively small. Overall, the market is in a off-season period, yet once again it does not truly represent a quiet off-season. So, will this year’s peak season also lack intensity? Firstly, the supply side is expected to see an increase. According to statistics from China Fertilizer Network, the designed production capacity for urea is expected to increase this year. This includes companies that had suspended operations in previous years, as well as several new facilities set to become operational this year. Currently, the daily physical output of urea stands at around 160,000 tons. Based on current production plans, barring any unforeseen circumstances—such as delays in commissioning new facilities or environmental inspections—the daily output could reach approximately 180,000 tons by year-end. Moreover, most gas-based fertilizer producers report that the likelihood of gas rationing this winter is relatively low. Meanwhile, domestic downstream market demand remains mediocre. In the third and fourth quarters of this year, the supply volume is expected to exceed that of the same period last year; however, this does not necessarily mean a strong peak season for urea demand. Secondly, the amount of reserves released in advance is also relatively large. Currently, there is virtually no demand in regions such as the Northeast; only some compound fertilizer factories are making stockpiles. If demand starts to increase ahead of schedule, it will have an impact on the potential demand in the market later on. In the Central Plains region, although there is some consumption, the actual amount consumed is relatively modest. Rough estimates suggest that the monthly production of urea is around 5 million tons. However, considering the current level of consumption and exports, the amount stored as inventory in society is at least 2 million tons. In other words, by the time stockpiling for winter begins, the potential demand for urea will be reduced by over 5 million tons. Even if there is a possibility of an increase in demand later on, overall supply will still face pressure. In summary, the urea market has once again entered a period when it is not in a slow season. Based on the current situation, there remains a risk of a downward trend for urea in the long term. However, with recent changes in the international market, certain uncertainties still exist; for instance, in the short term, urea prices are unlikely to decline before the shipping schedules in India come to an end, and there is even a possibility of further price increases. (Wu Wenchao)