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Stricter production limits – could urea prices rise? Author/Source: China Fertilizer Network Date: 2020-12-07 Clicks: 8 Recently, demand for urea in the domestic market has weakened. It was hoped that tenders in India would help boost prices in the domestic market, but there is a significant difference between international and domestic prices. This week, India’s MMTC announced the results of its tenders; over 2 million tons of urea were offered for purchase. The lowest bid price on India’s west coast was $284.77 per ton, including shipping costs. The hope that these tenders would raise domestic prices did not materialize, and price cuts became the trend for a while. However, this situation did not last long. There were increasing reports of urea factories in Henan, Sichuan, Chongqing and other regions shutting down or reducing production. After a brief period of stability, some companies began to raise their prices: currently, the average ex-factory price of urea in Shandong is 1,780–1,800 yuan per ton; compound fertilizer manufacturers in Linyi pay 1,800 yuan per ton for urea. In Hebei, the average ex-factory price is 1,800–1,820 yuan per ton, while in Henan it is 1,780–1,790 yuan per ton. In Shanxi, the average ex-factory price is 1,710 yuan per ton, with larger particles costing 1,740 yuan per ton. In Sichuan, the average ex-factory price is 1,750–1,800 yuan per ton. There are signs of price increases in the market, but considering various factors, it is still some time before there is an increase in urea prices nationwide. Firstly, the market supply remains higher than in the same periods in history. Recently, the daily production of urea has dropped sharply to around 130,000 tons, and there is a possibility that production levels will continue to decline in the future. However, based on historical data, current production levels are similar to those in the same periods over the years; moreover, some plants have only experienced short-term shutdowns, with plans to resume operations around mid-to-late December. At present, demand from downstream markets is limited, so an oversupply remains the main issue affecting urea prices. The likelihood of India placing new orders at high prices is relatively low, and international market demand provides little support, which in turn limits the increase in domestic urea prices. Secondly, demand is relatively average. Recently, in the market, only industrial demand remains; agricultural market demand has not yet emerged. Purchases in the industrial sector can be traced back to early October, and after more than a month of purchasing, most compound fertilizer manufacturers have stockpiles of urea raw materials amounting to around 40% of their needs. Although there is still a demand gap in the future, there is no urgency to make further purchases. Some companies in eastern Mongolia are now selling their products at discounted rates due to difficulties in selling them, and some intermediaries are also selling at losses. It is likely that distributors will be less inclined to make additional purchases until they have cleared out their existing stock. As for large compound fertilizer manufacturers in Heilongjiang Province, their procurement of raw materials has essentially come to an end. Given the current supply and demand situation, it is unlikely that urea prices in the Northeastern market will rise in the near future ； In the Sichuan region, although prices at most factories have risen, there is a relatively ample supply of goods at low prices in areas such as Mengxi; thus, price increases result only in goods available at higher prices without actual sales. Finally, it’s not just urea manufacturers that are subject to production restrictions. Recently, environmental inspections have been intensified in regions such as Central China and North China, and some downstream chemical manufacturers have also seen their production restricted to some extent. Although the operation level of urea production facilities in nearby markets has declined, demand for urea has also decreased. Moreover, rising urea prices are likely to affect the volume of urea sold. Based on the above considerations, it is expected that urea prices in regions such as Central and East China may rise due to reduced urea production. At present, however, demand from the agricultural sector has not yet increased, and industrial demand is also relatively slow. Nevertheless, some companies may be able to maintain high prices owing to reduced supply pressures, but it is expected that the volume of transactions at these higher prices will be limited. (Wu Wenchao)