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Urea prices rise despite supply restrictions; high winter storage prices prompt caution. Author/Source: China Fertilizer Network Date: 2020-12-09 Clicks: 6 Since last weekend, the domestic fertilizer market has remained a topic of intense discussion. Of particular note is the rebound in urea prices, with some areas seeing stops in price declines and even increases. The results of India’s new round of urea import tenders were released earlier; the winning bid prices on both the east and west coasts were lower than the domestic production costs. Moreover, Chinese suppliers played a very limited role in these bids. It seems that the negative trends affecting the export market will have an impact on the domestic market as well, leading to a decline in urea prices. However, shortages in the supply chain once again became a factor that helped stabilize the market. Following the policy-induced shutdowns in the Jincheng area, some urea producers also reduced their production, resulting in a sudden decrease in supply and a short-term recovery in market stability. Urea prices remain high, and the momentum from the winter storage period still persists. Compared to the beginning of this period, the prices of compound fertilizers are indeed at high levels, with increases of over 100 yuan per ton in most cases. Many companies are reluctant to lower their prices, and some are even considering further price hikes. The recovery in urea prices could provide support for further increases in winter storage prices, but whether there will be additional increases and by how much will depend on other raw materials as well as supply and demand conditions. First, raw material costs. As of now, the costs of pure raw materials for the 45% chloro/sulfur-based general-purpose series across the country are 1,690 yuan per ton and 1,985 yuan per ton respectively, representing an increase of nearly 100 yuan compared to levels at the beginning of November. As a result, it is inevitable that the prices of compound fertilizers will rise; however, further increases are unlikely. The price of urea has risen due to short-term supply constraints, but actual domestic demand is not satisfactory. If production resumes in the future, there is also a significant risk of price drops ； Yi’an Ammonium Enterprises continues to mainly supply products for prior orders; new orders are average in volume, and there is basically no possibility of further price increases ； Potash fertilizer prices remain high, with consolidation expected in the coming period. Secondly, downstream demand. Unlike other seasons, the winter storage period is relatively long; in northern regions, preparations need to be made up to half a year in advance, and market conditions are likely to change, which increases the risk level. Recently, demand in various markets has remained stagnant, with a strong tendency among retailers to wait and see. The reason for this is that most dealers placed orders for goods at relatively low prices earlier on, and those goods are now arriving one after another; as a result, they are reluctant to purchase more goods at higher prices ； The second reason is that grain prices remain high this year, leading farmers to be reluctant to sell their crops; as a result, distributors experience slow cash flow, with some indicating that the owed payments will not arrive until around New Year’s Day. Finally, the market situation for diammonium. Following the autumn period, the domestic diammonium phosphate market has seen increasing activity, with prices rising to high levels. Thanks to favorable export orders, there is a severe shortage of supply for winter storage purposes in this market, and prices have risen significantly. The increase in prices for compound fertilizers used for winter storage is partly driven by the large price gap compared to diammonium phosphate, which serves as a substitute. As companies finalize their export orders for diammonium phosphate, the export market is likely to cool down. The price of diammonium phosphate in the international market remains relatively stable. Additionally, domestic distributors are very reluctant to purchase diammonium phosphate at high prices; even if its price continues to rise, the increase is expected to be very limited. In summary, supported by raw material costs, the prices of compound fertilizers remain high. Although there is still resistance from downstream users, companies are likely to maintain high prices in the short term. (Feng Hongyang)