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Urea prices have skyrocketed! Has it reached the top? Author/Source: China Fertilizer Network Date: 2020-11-02 Clicks: 4 After the holiday period on October 9, urea prices first weakened before showing a clear upward trend. In particular, since October 16, the ex-factory prices of urea in regions such as Shandong have risen by 100–130 yuan per ton. It is worth noting that we are currently in the final stage of autumn demand, and these prices are already higher than those during the peak summer usage period; urea prices have risen sharply recently! So has it reached its peak? It’s likely that the peak has not yet been reached. Before discussing this issue, let’s first examine the reasons behind the sharp rise in urea prices: The first reason is high export volumes and favorable export prices. In September, China’s urea exports reached 828,500 tons, an increase of around 51.9% on a year-on-year basis. This figure is quite high when compared to China’s monthly urea production of about 4.5 million tons; after all, less than one-third of the urea producers in the country are able to export their products at present. India has awarded a large volume of contracts in this tender, amounting to 2.184 million tons. Of this, China has received orders for 635,000 tons, or nearly 700,000 tons. Although this is less than the initially expected 900,000 tons, the shipping time has been reduced. The bidding deadline in India was originally set for the 9th, but it was postponed several times until the 14th before the results were announced officially. This delay caused Chinese urea intermediaries to postpone shipments to ports, resulting in some urea manufacturers having orders worth 40,000–50,000 tons pending shipment at present. There is therefore not much urea available for domestic use, which explains the price increase. In particular, India may face a shortage of around 2.5 million tons of urea in the coming period. It is said that the new tenders could be issued in mid-to-late November; if that happens around the 15th, it will be quite soon, as the shipping date for this batch of urea is set for November 16th. Thus, shortly after the goods have been gathered at the port for storage, urea will need to be collected there again for the new tenders. Of course, this is just one possibility, and it could lead to further increases in urea prices. We will discuss this topic again at the end of this article. Reason two: It’s easier to obtain goods domestically than expected. Most large domestic agrochemical companies have been continuing to purchase goods, while there has been a sudden increase in bids from power plants for urea, leading to fluctuations in urea futures prices. This year, the large agrochemical companies that participated in the tender for winter stockpiling have fared better in terms of receiving supplies compared to previous years. After all, given the rising prices of coal and natural gas during winter, as well as environmental regulations and the potential shortage of gas, these factors could limit the operation of urea production facilities ； In many areas, temperatures dropped significantly for a short period of time; as a result, power plants started operating at a higher rate, which increased the demand for urea for desulfurization and denitrification purposes ； The same is true for urea futures. Given that urea futures are not yet mature, there is significant influence from capital flows; in particular, companies with substantial capital resources may drive up prices in the spot market, which could result in losses in the long run. However, the futures market is different – prices keep rising there, but there are opportunities to make profits at any time. Orders from export markets, large domestic agrochemical companies, and power plants force compound fertilizer manufacturers to accept high prices; although the volume is not large, it is possible for urea prices to rise slightly as a result. Third, the supply of urea was higher than in the same period in previous years, but lower than the previously expected level of over 160,000 tons. Recently, the daily urea production has been slightly above 150,000 tons, mainly due to a slightly higher number of urea manufacturers undergoing planned or unplanned maintenance activities, which provides some support for rising urea prices. It is worth noting, however, that more urea plants will resume operations in the near future, and production restrictions will also come into effect in regions such as Shanxi. Urea manufacturers that rely on gas face rising gas prices as well (given the weak international oil prices, it is uncertain whether gas prices will increase). Whether there will be a shortage of gas depends on whether this winter will be cold; urea supply changes dynamically, and its impact on prices needs to be analyzed carefully. In short, according to incomplete statistics, overall supply this year is expected to be higher than last year. Recently, grain transportation has started in various places, while the transport of urea has faced restrictions; the impact on prices remains unknown for now. In short, there is a sufficient supply of urea ready for shipment; very few manufacturers have even stopped taking orders (mainly due to the large amount of stock available and uncertain transportation conditions). Those manufacturers with an advantage in terms of exports continue to gather their goods at the ports, and this process may continue until the 5th or even later. New tenders in India are likely to be issued in mid-November. Therefore, although urea prices have risen sharply, it is likely that they have not yet reached their peak. The actual situation will depend on the progress of goods gathering at the ports, the conditions of domestic transportation, and the pace at which manufacturers that have stopped production resume operations ； It is worth noting that given that the price of urea has already exceeded the psychological threshold for most industry insiders, considering that the actual demand for domestic consumption during the autumn and winter off-seasons is not high, and taking into account the possibility that the new pricing will be announced at the end of November, the domestic urea market in China is bound to cool down by mid-November. As for whether prices will drop significantly from their current high levels, we will need to observe and analyze the situation.