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Reasons for the rise in urea prices – It’s not just about the bidding process/Source: China Fertilizer Network Date: 2020-10-23 Clicks: 16 As one bidding round after another comes to an end, urea prices in China continue to rise. Similar to previous situations, the bidding process in India has also led to a certain increase in urea prices in China. It is also reported that India’s RCF has extended the bidding deadline once again until October 23. China appears to be prepared to send around 700,000 tons of urea to India, and middlemen may increase their purchases from China as well. However, as of now the price of urea has not risen significantly, and based on recent market trends, sales have been average despite some local price increases. The increase in urea prices is not solely due to the printing of price labels; it is also driven by the demand for fertilizers in regions such as North China, Northwest China, and Northeast China. Additionally, there are concerns regarding rising costs of raw natural gas in the Southwest market, as well as high prices for liquid ammonia. Some companies have also shifted their production focus to other areas. The industry is currently paying close attention to how prices will develop in the future. The price of urea remains stable with slight increases in some areas, though the rate of increase is slowing down and the magnitude of those increases is decreasing. In the local markets, there are often situations where goods are available for sale but no buyers are present. Large agrochemical suppliers are being cautious with their stockpiling. There is demand from the industrial sector, but large orders remain scarce. Although the operating capacity of urea manufacturers is still low, there is a trend toward improvement. It is understood that the supply of small-particle urea in the Shanxi region is tight; the mainstream factory price ranges around 1,600–1,610 yuan per ton. In the Sichuan and Chongqing regions, some companies have raised the price of urea to 1,680 yuan per ton ； Some large agrochemical suppliers say that the price of urea has risen significantly, and downstream buyers are also more cautious; therefore, to avoid risks, they do not intend to stock up in large quantities. As for the reasons behind the increase in urea prices, it is mainly due to bidding activities in India. As of recent times, the amount of urea awarded through bidding in India may have risen to 2.229 million tons, with the shipment scheduled to take place by November 16. However, India’s RCF has extended the bidding period once again until October 23, primarily because it needs financial support as well as assistance regarding port allocation. Although there are logistics issues at Chinese ports, the overall volume of urea awarded through bidding in China is expected to be considerable. This has undoubtedly boosted the export of urea in our country, and to some extent it has alleviated the oversupply situation in the domestic urea market; as a result, some manufacturers have shifted their focus to export orders. Secondly, there is support from the demand for fertilizers in the domestic market. According to statistics from China Fertilizer Network, the overall operational rate of compound fertilizer manufacturers is relatively low, at around 47% only. However, as winter storage policies and price measures are introduced by various factories, production activities will progress to some extent, leading to an increase in the purchase of raw material urea ； Additionally, the operation of current plywood factories is fairly good, resulting in a considerable demand for urea ； In addition, there are current demands for fertilizer procurement in regions such as Guangdong and Guangxi, the northwest, and parts of the southwest. It should also be noted that some urea manufacturers in Sichuan and Chongqing have reported that, driven by expected price increases for raw natural gas, downstream users are increasing their stockpiles of urea, which has led to a shortage of urea in those areas and consequent rising prices; in some cases, the price increase was as much as 100 yuan per ton. Once again, the operating rate of urea manufacturers is low at only 55.6%, resulting in tight supply of goods in certain areas. Affected by production restrictions, the operating rates of urea manufacturers in Jincheng, Shanxi remain low ； A few urea manufacturers in Shandong and Henan provinces are undergoing maintenance ； Additionally, the market for liquid ammonia is favorable, with prices remaining high in various regions; a few companies have also shifted their production focus slightly toward it, resulting in a slight decrease in urea production in certain areas. However, due to the persistently high prices of liquid ammonia – or even further increases in these prices – there is resistance from downstream users. Coupled with the upcoming release of new production capacity in certain areas, the market for liquid ammonia shows a tendency to weaken. At such a time, some companies may shift their focus back to urea production. Overall, the rise in urea prices is driven not only by increased labeling costs but also by rising local demand and reduced supply. However, as overall demand remains limited – especially since it is off-season in the agricultural sector, leaving behind the most crucial factors supporting price increases – coupled with factors such as increased reluctance on the part of downstream users to stockpile urea as some manufacturing plants resume operations, it is expected that future increases in urea prices will be limited, with a trend of steady prices with slight rises in certain areas. (Tan Junying)