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A 50% discount and it’s snapped up instantly? Has the phase of modest urea stockpiling begun? Author/Source: China Fertilizer Network Date: 2020-09-28 Clicks: 23 Just a few days after urea prices dropped, a major urea producer in Liaoning offered discounts of 30–50 yuan per ton on large orders this morning, and these offers were quickly snapped up; currently, there are tens of thousands of tons of orders pending shipment ； However, a major urea producer in Shandong reduced the price by 40 yuan per ton this morning; sales are currently not good, and prices may be lowered again tomorrow. A major urea producer in Inner Mongolia has secretly reduced the price by 30 yuan per ton over the past two days, and it remains to be seen how sales perform. Is this the beginning of a moderate urea stockpile buildup? Let’s take a look at the following aspects: First, the inventory management practices for industrial customers and those for agricultural customers. Industrial customers’ strategic stockpiling of urea involves purchasing it at relatively low prices over a certain period of time. Especially around the time of meetings related to phosphate-based fertilizers, industrial compound fertilizer manufacturers and blend fertilizer producers in regions such as the Northeast purchase amounts of urea and other raw materials; this not only meets their production needs for a while but also gives local buyers some confidence ； Furthermore, as expected, the rainy season in the south has passed, and industrial plywood manufacturers have seen an improvement in their purchases of urea. In short, customers in the industrial sector have begun to stock up gradually; however, there is still a long way to go, and the next wave of purchases is likely to be considered only after the impact of exports diminishes. As for the strategic stockpiling by agricultural clients, it is understood that these clients have already become impatient. Whether it was in mid-to-late July or more recently, as the price of urea continued to fall and food prices were expected to rise, some small and medium-sized distributors began to order smaller quantities. Therefore, among the orders resulting from the current price drops, we will see orders from these clients; this year, there may not be a formal initiation of strategic stockpiling by agricultural clients. Secondly, export prices are declining slowly, and new pricing lists could be released at any time; it is therefore a good strategy for industrial customers to stock up appropriately. Although the estimated price for the next batch of urea to be exported from India might be slightly below $260 per ton, the price at ports such as Yantai would be over 1,700 yuan per ton. After deducting the shipping costs incurred by Chinese urea manufacturers to deliver the goods to those ports, the final factory price remains high. Should India issue new procurement tenders, this will act as a support for domestic urea prices. Moreover, as port handling operations gradually return to normal over time, industry experts are becoming more optimistic about new exports. Once again, the unexpectedly low supply levels in the short term provided some support for urea prices. Large urea producers in Shandong and several such companies in Xinjiang have carried out both planned and unplanned maintenance activities; in particular, urea manufacturers in Shanxi are required to reduce production by 20% until October 1st. In recent days, the daily output of urea has been only 154,000 tons. Most urea producers in the Northeast and Inner Mongolia either supply products for export or produce specialized types of urea, so there is not much supply available in the short term. It is easy to understand why a major urea producer in Liaoning was able to attract many orders by offering slight discounts. However, there are positive aspects: whether it’s demand from manufacturers or quotes received, customers have once again shown interest at a level 40-50 yuan/ton higher than the lowest prices seen in late July this year ； The negative factors cannot be underestimated either; the launch of new production facilities in India may continue to be delayed. Industrial purchases are only temporary, and if purchases for agricultural stockpiling are not concentrated, urea prices will not truly reach their lowest levels. The shortage in supply is also only temporary; if there is an adequate supply of natural gas in winter and coal-based manufacturers do not significantly reduce production, coupled with the commissioning of new urea production facilities in Shandong, the restart of facilities that have been shut down for a long time in Xinjiang, and the gradual resumption of operations by companies that were under maintenance, then if supply volumes return to above 165,000 tons, it will pose a significant challenge to efforts related to agricultural urea stockpiling. Overall, urea prices are falling again; for customers with essential demand, it is the best approach to purchase the product promptly and sell it at the right time. For those without such essential demand, it would be more appropriate to wait until the impact of export restrictions diminishes before considering stockpiling. (Cheyan Hong)