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Winning a bid for over 800,000 tons – is an increase in urea prices inevitable? Author/Source: China Fertilizer Network Date: 2020-08-31 Clicks: 49 Just as there were signs of a reluctant price increase last afternoon, the news that China won a bid to supply over 800,000 tons of urea for use in India last night made further increases in urea prices seem inevitable Continued shortages in India! China continues to win numerous bids! On the evening of August 27, India won the bid for 1.7 million tons of urea, of which the amount from China could exceed 800,000 tons, and might even reach 1 million tons! For a while, people in the agricultural supplies industry’s social media circles were filled with discussions about the possibility of urea prices rising – and indeed, they did rise. The winning bid price is also a significant source of support! The day before, India submitted offers to all suppliers based on the lowest bid prices: $283.52 for delivery at ports on the east coast, and $288.89 for delivery at ports on the west coast. Chinese urea was among the products offered; the corresponding offshore price in China was around $267–271, while the price at Chinese ports was approximately 1,840–1,870 yuan per ton. After deducting port fees and related shipping costs, this constitutes the ex-plant price for urea manufacturers in China. Taking Shandong as an example, the export ex-plant price for urea there is above 1,750 yuan per ton. Although the ex-plant prices of urea manufacturers in Shandong and other regions have risen by 20–40 yuan per ton over the past two days, reaching 1640–1710 yuan per ton, they are still far below the net ex-plant prices available for export. Therefore, there is room for a significant increase in urea prices in the future. Despite all the positive factors, there are still underlying concerns: on the one hand, port loading and unloading is slow. In the last bidding round, the total amount awarded was as high as 952,000 tons; this time it’s 1.7 million tons. India is truly facing a shortage! Last time it was 289$ upon arrival, and this time it’s 283.52$ – India has indeed made concessions! But with such a large volume of shipments, won’t it cause congestion at Indian ports? Especially with such severe restrictions on cargo volume in our country’s ports, could this have a significant negative impact? In the first three rounds of tendering, China won contracts totaling around 800,000 tons, which caused congestion at China’s ports until the end of August. What impact will another 800,000 tons of exports have? One can only move forward while observing. It is understood that some urea manufacturers have revised the export orders they previously signed, as the scheduled shipping dates of September 4th or 15th were not feasible. It is precisely due to this uncertainty related to port loading restrictions that the price increase of urea in our country has not been sharp in the past two days; moreover, the prices of new export orders signed by urea manufacturers have not reached the high levels that would result from converting those prices into local currency terms. On the other hand, supply is set to increase significantly. The production capacity of a urea factory in Shandong has been restored to a large extent and is on the verge of operating at full capacity. A factory in Sichuan has been operating at full capacity since the 27th. Two urea factories in Inner Mongolia are also about to reach full capacity. A factory in Jiangsu that was temporarily shut down will resume half of its production by the 29th, while another factory in Jiangsu will restart operations at the end of August. A factory in Henan that was temporarily shut down is currently being restarted, and a factory in Shaanxi is likely to resume operations next Tuesday. A factory in Liaoning will restart operations on September 15th ； There are also manufacturers that are about to undergo maintenance; for example, a factory in Inner Mongolia will have maintenance work in mid-September, while a factory in Henan will carry out maintenance in October. As of August 28, the daily urea production volume had reached 155,000 tons, and it is likely to reach 162,000 tons by the end of the first week of September. It is obvious that exports, at a level of 800,000–1,000,000 tons for September, cannot provide much support. Returning to the initial point, supported by international prices, urea prices in China should continue to rise. During certain periods in September when there is a rush to ship goods to ports (after all, as long as urea manufacturers have export orders, domestic buyers with urgent needs are at a disadvantage), the ex-factory prices of urea in China could rise to levels comparable to those available for export. If port deliveries recover quickly, the increase will be greater; otherwise, domestic trade prices may only see a slight upward trend. It is recommended that customers with genuine demand purchase goods in appropriate quantities, while those without such urgent need should wait until the period when domestic production keeps pace with exports is over before making any decisions. After all, we have experienced situations where prices rose by 220 yuan per ton only to drop by 170 yuan per ton later; we have also seen sharp fluctuations in urea futures prices. On top of that, in the fourth quarter, two urea production facilities with a capacity of around 1 million tons each are set to come online in Shandong and Inner Mongolia. (Che Yanhong)