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Urea production restrictions incoming – price increases before National Day possible? Author/Source: China Fertilizer Network Date: 2020-09-27 Clicks: 11 Recently, the Jincheng area in Shanxi issued a “Notice on Strengthening Control of Air Pollution.” As a result of this policy, the overall production capacity of urea in that area was reduced by 20%, with the implementation period running from September 25 to October 1. In addition, some factories reduced or halted production due to various issues. According to monitoring by China Fertilizer Network, the daily national production volume of urea has dropped to 154,000 tons. Some industry experts believe that, given the volatile conditions surrounding urea, overall supply may decline slightly, which could lead to an increase in prices. However, based on feedback from factories, this is not necessarily the case. Currently, the standard ex-factory price of urea in Shandong is between 1,670 and 1,700 yuan per ton. In Linyi, compound fertilizer manufacturers are purchasing urea at prices ranging from 1,690 to 1,700 yuan per ton, with a daily supply volume of 19,000 tons. In Hebei, the standard ex-factory price of urea is between 1,700 and 1,750 yuan per ton, while in Henan it is between 1,650 and 1,660 yuan per ton. In Shanxi, where production restrictions apply, the standard ex-factory price has dropped to 1,550 yuan per ton, with large-grain urea costing between 1,600 and 1,620 yuan per ton. The urea market is showing a downward trend rather than an upward one, and the main reasons for this are as follows: First, demand from the market is relatively weak. At present, although some urea manufacturers are fulfilling export orders and there is still demand for urea in rural areas during the autumn, with fertilizer manufacturers in the Northeast region even beginning to stock up in advance for winter use, the actual demand for urea in the market is relatively low due to factors such as the depletion of pending orders and the relatively lower demand for urea in rural areas during autumn. The latest delivery date specified in India’s recent bidding process was October 5th; thus, even though there is demand in export markets, the port handling capacity in China is currently limited. Some manufacturers have even given up on certain export shipments due to tight shipping schedules. In major industrial areas such as Linyi in Shandong Province, urea transaction volumes have also been relatively low recently, with weak market demand, resulting in factory prices remaining low at present. Secondly, advance payments during the National Day holiday. As the National Day approaches, although some factories still have orders pending shipment, there are also enterprises that will resume production around this time. Based on future supply conditions, sales pressure is likely to persist in the short term. Given the length of this holiday, if sufficient orders are not received in advance, there could be a backlog of goods. By the time after National Day, the market will not yet be in its peak season for winter storage; and if inventory levels become an issue (as many companies have limited storage capacity for urea), prices are likely to drop further. Therefore, in order to avoid risks in the future, there is room for negotiation when concluding deals at this stage. In summary, the date for another bidding process in India has not yet been determined. There are relatively few favorable factors in the domestic market, and due to factors such as the pandemic, the loading and unloading capacity of most ports is currently at a moderate level. Even if bidding takes place again in India at this time, its impact on the domestic market will be limited. Moreover, the current production restrictions will only last until just before November, so they do not have a significant effect on the supply of urea in Shanxi. Given that some of the urea-producing enterprises do not have plans to suspend production for an extended period this year, and some factories are planning to increase production, coupled with the uncertainty associated with the pandemic, caution is still necessary when assessing the future trend of urea prices. (Wu Wenchao)