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Urea: Without the ‘profit margin’ from sales to India, prices drop easily. Author/Source: China Fertilizer Network Date: 2020-09-04 Clicks: 7 “There will be bread, and there will be milk.” Just as in the current urea market, where domestic demand is low during off-seasons, exports serve as a support mechanism; as a result, each bidding process in India ends with fairly high prices, which in turn drives up prices in the domestic market as well. There is bread, and there is milk. But as of now, the bidding process in India has come to an end, and the domestic urea market has seen a continuous decline in prices. The sentiment within the industry is largely pessimistic; without the demand generated by those Indian bids, sales within the domestic market are under pressure. Although some companies manage to hold their prices at difficult times, they eventually begin to see price drops as well. Currently, urea manufacturers are relatively pessimistic. Plants are operating at high levels, and although there is no significant pressure on inventory levels, the restrictions on cargo loading at ports have not improved markedly. With a weak season for agricultural demand in China and limited industrial demand, transaction prices have dropped easily, yet the mood within the industry is not optimistic. Currently, the main ex-factory price of urea in Hebei is around 1710–1770 yuan per ton, while in Henan it is 1650–1670 yuan per ton. In Sichuan and Chongqing, sales of urea by local manufacturers are not smooth, and the reference prices for transactions at the factory level are around 1580–1650 yuan per ton. The industry is awaiting further updates regarding pricing decisions and the trend in urea prices. Firstly, the overall production level in the urea industry has seen a recovery, but it is difficult to maintain price levels. The urea production plants that underwent maintenance earlier have largely resumed operations; at the same time, a few liquid ammonia plants have reduced their production and switched to producing urea. The operating rate of urea production plants is on the rise. According to statistics from China Fertilizer Network, as of now the overall industry operating rate for urea production plants is around 58.06%, with a daily production volume of approximately 163,000 tons ； Especially as the weather gradually cools down, the production and operation of enterprises’ facilities are running more smoothly ； The current liquid ammonia market is weak, with prices in North China and East China dropping significantly; it is possible that some companies may temporarily shift their production focus toward urea in the future. Secondly, due to the off-season in domestic market demand, companies are moving goods at a slow pace. Currently, it is the off-season in the agricultural market; there are only occasional small purchases at the local level, which inevitably leads to a situation where goods are available but there is no market for them ； Large traders are even more cautious about their inventory levels at this time, purchasing only as needed and at higher prices when demand rises ； The overall operational rate of the industrial compound fertilizer industry has dropped slightly to around 56%. There is pressure on inventory levels of finished fertilizers; companies still have some raw materials purchased in advance. Moreover, most small and medium-sized compound fertilizer manufacturers operate at a low capacity, resulting in limited purchases of urea, which is a key raw material for fertilizers. Especially in autumn, high-phosphorus fertilizers are more popular, giving urea, a nitrogen-based fertilizer, less advantage ； Currently, the overall operating level of plywood factories is low, resulting in little demand for urea. Based on the above, even if there is procurement for localized urea demand in the later stage, the overall domestic demand remains weak in terms of support. Re-export activities are a key factor in alleviating pressure on the domestic market. Judging from the successive tenders issued by India, it is easy to infer that it has a high demand for urea, and this demand is likely urgent as well ； Furthermore, its recent prices provide considerable support for the domestic market conditions in our country ； Furthermore, as the port loading restrictions improve, export progress will also accelerate, which is beneficial to the domestic urea market. Ultimately, whether viewed from the perspective of those in the industry or considering the current supply and demand situation for urea, the urea market is likely to remain in a weak state ； However, there is also expectation for a rebound in the operations of compound fertilizer manufacturers, as well as moderate purchases of wheat fertilizers in certain areas. Of course, what is most anticipated is the situation at various ports and in terms of exports. Overall, unless there is an improvement in the port loading restrictions in the short term and India stops issuing tenders, the domestic urea market will remain weak, with prices likely to fall easily or be subject to negotiation ； However, considering industry sentiment and export prices, the degree of decline should also be limited. (Tan Junying)