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Urea prices have risen again! Is this the final madness? Author/Source: China Fertilizer Network Date: 2020-12-11 Clicks: 4 Since December 5, urea prices have risen again; manufacturers in Shandong, Shanxi, Jiangsu, and Anhui have increased their ex-factory prices by 20–30 yuan per ton, while those in Sichuan and Chongqing have raised them by 50–70 yuan per ton ； In recent days, urea futures have been even more volatile, with prices rising steadily from the opening. For the Ur2101 contract, the main urea contract traded on the Zhengzhou Commodity Exchange (CZCE), the closing price yesterday was 1834, the opening price today was 1837; the price even reached 1880 at one point. What’s more surprising is that the real-time price dropped to 1811 in the afternoon, with the final closing price for today being 1835. This increase in urea prices is different from previous ones: in many areas the rise was not significant. In some places, prices rose but sales were poor, yet prices continued to rise; in other areas, there was a apparent stability while actual prices dropped, which gave the industry the sense that we are witnessing final frenzied behavior. However, with environmental restrictions to be lifted in Shandong and other regions on the 12th, this increase in urea prices is likely not to stop soon. The price increase originated from the shutdowns or reduced production capacity of urea manufacturers in Sichuan and Chongqing on the evening of December 3, due to a shortage of gas. It was also caused by the shutdowns and reduced production of urea manufacturers in Shanxi as a result of environmental regulations. Recently, most urea manufacturers had sufficient stock ready for shipment, while those that were shut down were unable to fulfill these orders in a timely manner, which meant that customers with essential needs could not obtain the goods they needed promptly. Additionally, restrictions on cargo volume at stations such as Jiangmen in Guangdong, along with Guangxi’s urgent need for new urea supplies after a period of stock accumulation, contributed to this price increase. Now let’s talk about why this rise in urea prices is considered the last bout of madness. Although there is domestic demand, it is not strong enough to provide sufficient support. Fertilizer compound manufacturers may undertake another round of urea purchases following the lifting of environmental restrictions, plywood factories might conduct their final rounds of production before the weather gets colder, and some of the companies involved in the state-owned inventory program may not yet have reached the required amount of urea. As time goes by, dealers in the Northeast who want to start selling fertilizers in February, as well as those in regions like Shandong who intend to apply topdressing to winter wheat in February, are beginning to act proactively by inquiring about prices in order to stock up on supplies. It’s truly the right time to purchase urea – if not now, then when? But upon closer examination, the demand isn’t that urgent, and the gap doesn’t seem to be very large either; therefore, there should be little room for an increase in urea prices. There is also demand from exports, but it should not provide support for now. Not to mention the unsatisfactory prices indicated in the bid on December 1st, the final winning bid price for delivery to the East Coast was 286.50$, which is approximately 270$ when converted at the exchange rate of 6.58 at that time. After deducting 60 yuan for port fees, the price at major ports in China such as Yantai Port is around 1717 yuan per ton. The price for bulk shipments is slightly higher by 40 yuan; after deducting the shipping costs, this represents the export price from the manufacturers ； Even the number of contracts won was not satisfactory: the total amount awarded was 1.273 million tons, with China accounting for only 3 vessels. One of these vessels was transferred to another port; in other words, only 2 vessels carrying Chinese-made urea were sent to India, for a total of 100,000 tons. This amount is not sufficient to drive up the price of urea in China. Since doubts about this bidding process existed even before it started, and there was no widespread speculation, the negative effects of the recent award of contracts are not that significant. Additionally, at present, the price of large-grained urea in China remains stable or shows a slight increase. The latest FOB price for 3,000 tons of large-grained urea exported from China to South Korea is $274–279, which indicates that exports can only help maintain current domestic prices to a limited extent. It is understood that the new printing of labels is likely to take place after January. Currently, urea sales in India have slowed down slightly compared to last year; as of December 8, India’s urea inventory stood at 8.182 million tons, an increase of 681,000 tons from the previous month. Although supply dropped sharply, the overall supply in 2020 was still higher than that in 2019. Since early December, the daily production of urea has dropped sharply from around 147,000–150,000 tons to less than 130,000 tons, catching some urea buyers off guard. However, this is only a temporary situation; in the future, some urea manufacturers will suspend production while others will resume it, so the reduction in urea supply will not be significant. Generally speaking, the daily production of urea throughout November was 10,000–20,000 tons higher than it was during the same period last year. If production decreases in December to levels similar to those of last year, then in the long term there should be no shortage of urea. Again, the excess urea production this year compared to last year should have mostly ended up in the warehouses of the storage companies. In short, aside from the aforementioned supply and demand factors, given that 2020 is coming to an end and manufacturers are eager to recover funds to repay bank loans, the recent rise in urea prices is likely to be a final spike in prices. However, considering that storage companies are purchasing urea, as well as urea producers and large agrochemical companies engaging in speculative activities in the futures market, which distorts market trends, and given that small and medium-sized distributors have low levels of urea inventory, it remains to be seen whether prices will drop significantly. (Che Yanhong)