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Urea: Aligning with Indian standards? Straight to 1700? Author/Source: China Fertilizer Network Date: 2020-11-26 Clicks: 6 Urea has indeed dropped! Since November 22nd, the ex-plant prices of urea in areas such as Lianghe and Shanxi in Shandong have dropped by 20–30 yuan per ton. In other regions, prices appear stable on the surface but actually decline secretly; in the market, wholesale prices are mostly inverted, with some areas seeing an inversion of up to 50 yuan per ton. Having held on for so long, can’t hold on any longer? Will the price at the factories in Shandong drop straight from 1,800 yuan/ton to 1,700 yuan/ton? On the one hand, the industry is generally pessimistic about the prices and quantities specified in this tender. Firstly, the tender process has been delayed for far too long – so long that we can no longer use it as a pretext for price increases. The delays have occurred frequently, and the industry has become immune to such delays. Since the last tender round ended on October 9th, with 2.184 million tons of urea awarded as the winning bid, we have been waiting for this latest tender. It kept getting postponed from mid-November until November 23rd, before India finally announced the tender; the date for opening bids was set for December 1st (a gap of nearly two months). The deadline for submitting bids was December 6th, while the shipping date was set for January 6, 2021. Even if this tender does help support urea prices in our country, that support would only last until late December at the earliest ； Secondly, the current offshore price of urea in China is 280$ or more; based on an exchange rate of 6.57, this translates to a port price of only 1840 yuan. After deducting around 60 yuan for port-related expenses, the price at manufacturers in regions such as Shandong is at most 1700 yuan, slightly higher than that. Given that the current export price from Shandong is between 1750 and 1800 yuan, there is indeed room for a price decline; further observation will be needed to determine the exact situation. Moreover, in places such as Egypt, the offshore price of urea has risen sharply in just over the past week, from around $260 to $280. It is not clear whether there is actual demand or if this rise is aimed at setting a relatively high starting price for bids in India; it remains uncertain what that price will be. Once again, the latest data from India show that sales of domestic urea in that country declined on a year-on-year basis during October and November, likely due to the fact that the pandemic has not been effectively brought under control ； During the last tender, 2.184 million tons of urea was in urgent need of arriving at the ports of India, which led to congestion there. While this new tender may involve the purchase of 1.6–1.8 million tons of urea, India is not as urgent about it now. The prices offered by suppliers are likely to drop from the current level of around $280 FOB; in other words, China’s FOB price is unlikely to reach $280. In the last tender, the cost of delivering urea to the east coast of India was $279.25 (equivalent to $260–$266 FOB in China), and the increase in prices for this new tender is not expected to be significant. On the other hand, while there is demand for domestic urea in our country, it is not that urgent. For example, industrial compound fertilizer manufacturers, power plants, and plywood factories, as well as agricultural grain reserves, all only purchase goods in appropriate amounts ； Among the 9.98 million tons of chemical fertilizers that are expected to be stored for commercial use in 2020, the companies responsible for storing these fertilizers have already purchased some urea during the previous period of rising prices. As for the use of futures markets for intervention, market participants are becoming more cautious. Customers with essential needs do indeed need to keep replenishing their urea supplies, but they are buying in gradually while waiting to see how things develop, given that current prices are much higher than expected and even higher than those in spring. The daily production of urea is around 150,000 tons, which is more than 15,000 tons higher than the same period last year. Let’s look at another set of figures: In October, China’s urea exports were as high as expected, at 1.09 million tons, far exceeding those of other months. The total volume of urea exported by China from January to October was 4.02 million tons, representing only a 3.4% increase on a year-on-year basis. Domestic demand for urea in both industrial and agricultural sectors remained roughly the same as in the same period last year; therefore, the excess urea produced had to be stored in the warehouses of storage companies. It is likely that this excess urea cannot be sold right away, as there is no immediate opportunity for it to find buyers. For now, there is nothing but to wait for exports of urea to continue to surge in November and December; perhaps only then will the urea market be free of concerns next spring. In summary, is adjusting the urea price the only option left? Not necessarily. After all, it is quite common for the domestic price of urea in our country to be about 50 yuan higher than its export price. The inventory pressure on urea manufacturers is currently not high, and there is little price support from tendering processes. If a large volume of urea is awarded through tenders in our country, the price of urea could rise again even after this decline. After all, with the tendering taking place on December 1st and the winners being announced on the 6th, there is still some time during which the price can fall or be manipulated. Moreover, since urea futures have risen for two consecutive days, this can still have a slight impact on market sentiment ； In short, industrial users need to be wary of continuous price drops and also need to see if there will be a final rise before the end of the year following those drops, while most agricultural customers will remain inactive for now. (Che Yanhong)