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Urea prices soar; is ammonium chloride the preferred choice? Author/Source: China Fertilizer Network Date: 2020-11-17 Clicks: 4 Indeed, urea prices are still on the rise. Even though there is a supply surplus in the agricultural sector, factors such as production restrictions, reduced output, or shifts in production methods have led to adjustments in operations. Additionally, new tenders issued by India have contributed to this situation. As a result, the urea market remains active during the off-season, and prices continue to rise instead of falling. The industry is also confused regarding the future trend of urea prices ； However, this is indeed beneficial for ammonium chloride. With the support of high-priced urea, it further bolsters ammonium chloride, which already has a relatively low price. Nevertheless, the positive trend of ammonium chloride isn’t solely dependent on urea. Currently, the market situation for ammonium chloride in China is favorable, and the attitude of industry players has also changed, with a cautiously optimistic outlook. The price of ammonium chloride has risen as well, though the increase is limited due to the off-season period; companies are adopting a more rational approach to raising prices compared to previous years. Companies have ample advance orders, and orders for November are generally fully booked; as a result, they need to control or stop accepting new orders, leading to a tight supply of goods in the market. The prevailing ex-plant price for wet ammonium in Central China is around 420–480 yuan per ton, with prices subject to negotiation. Looking again at urea, which remains at high levels and is still seeing slight price increases in some areas, ammonium chloride may gain favor in the downstream market. Firstly, urea contributes to the positive trend of ammonium chloride to a certain extent, and this is certainly due to the high prices of urea. In the Southwest region, natural gas prices have risen, increasing the costs for urea producers that rely on natural gas as a raw material. Should natural gas prices in Inner Mongolia also rise in the future, those costs will inevitably increase even further ； Furthermore, domestic industrial plywood manufacturers and industrial fertilizer producers continue to have a demand for urea. Additionally, India may issue new tenders between the 15th and 20th of this month, which may force domestic urea producers to engage in price speculation. But after all, it is the off-season in the domestic agricultural market; there is demand but no supply at the grassroots level, and people tend to wait and see. Large traders consider high-priced urea to carry significant operational risks, so they are reluctant to proceed and their enthusiasm for purchasing decreases. The sales of finished fertilizers by compound fertilizer manufacturers are also average, and cost pressures lead them to avoid using urea as a raw material. The volume of sales of relatively low-priced ammonium chloride is increasing, but urea prices are expected to fall, which will reduce the support for ammonium chloride. Other than urea, it is the supply and demand dynamics of ammonium chloride itself that are crucial. Secondly, the operating rate of the ammonium chloride industry fluctuates around 70%, with no clear trend toward decline nor any expectation of an increase. Although the market for soda ash is sluggish and prices have dropped significantly, based on the cost per two tons, soda ash manufacturers do not plan to reduce their production levels at this time. Towards the end of the month, some enterprises will shut down their production facilities; certain plants in Jiangsu and Sichuan will continue to operate at a reduced capacity as a minimum. Additionally, production cuts due to policy reasons or temporary failures of the facilities could also occur on a short-term basis. According to statistics from China Fertilizer Network, as of now the overall operational rate of the caustic soda industry is around 72.2%, with a daily production volume of approximately 37,800 tons ； Additionally, current ammonium chloride inventories in various factories are low, so there is little pressure from existing stock levels in the market. Meanwhile, there are sufficient pre-paid orders, meaning that supply will remain tight in the short term. The demand for ammonium chloride is increasing steadily once again. Firstly, the price of urea has risen significantly, resulting in a large price gap compared to ammonium chloride, which is relatively cheaper. As a result, some compound fertilizer manufacturers have become more enthusiastic about purchasing ammonium chloride, and the volume of their purchases is increasing steadily ； Second, traders are optimistic about ammonium chloride and expect to build up reserves ； Thirdly, the progress of winter inventory buildup in the Northeast region is fairly good, with strong purchasing sentiment among downstream players. Although the price increases are modest, the pace of goods distribution remains steady. Overall, during this off-season period, the urea market remains active. Domestic demand and raw material factors are helping to keep prices at relatively high levels. This, in turn, has significantly increased the pressure on compound fertilizer manufacturers. Ammonium chloride prices have also been supported; however, its overall demand remains limited. Recently, driven by factors such as tight supply and robust demand, ammonium chloride is expected to continue its positive trend, with room for a steady and modest price increase. (Tan Junying)