Thread Content
High prices face resistance; urea prices continue to rise Author/Source: China Fertilizer Network Date: 2020-12-11 Clicks: 4 Recently, there has been a strong trend of rising urea prices. Even during the off-season for domestic agricultural use, and amid challenges both at home and abroad due to the lack of advantages in exports, it is solely domestic industrial demand that drives these price increases. In particular, domestic restrictions on production and gas supply have led some urea manufacturers to reduce their output, further pushing up prices； Even though there is a surplus of agricultural wholesale products with no demand, the purchasing price of urea by compound fertilizer manufacturers in the Linyi area has risen to 1,830 yuan per ton. As downstream consumers become more resistant to such high prices, urea manufacturers still insist on raising prices slightly. In Shanxi and Henan provinces, due to strict environmental inspections, the operation of urea production plants has been significantly reduced, leading to a shortage of supply. The average ex-factory price of urea in Shanxi has risen to around 1,740 yuan per ton, while in Henan it has increased to around 1,810–1,820 yuan per ton ； Some urea production plants in the southwest and Inner Mongolia regions have had to reduce production or even shut down due to limited supplies of natural gas as raw material; moreover, some of these plants have indicated plans to halt operations, which will further reduce production. Currently, the average ex-factory price of urea in Sichuan and Chongqing is around 1850–1885 yuan per ton. With the end of the year approaching, what is the reason for continued increases in such high prices for urea? Firstly, starting operations at a lower level is the biggest driving force in the industry. Regions such as Shanxi, Henan, and Hebei are affected by environmental inspections; as a result, production levels will remain low in the short term, and it is possible that some companies will even be forced to suspend operations. Additionally, some enterprises are carrying out short-term maintenance work ； In the southwestern region, urea manufacturers are facing shortages of raw materials, which has increased costs; as a result, these companies may continue to reduce production or even cease operations until New Year’s Day or beyond. Therefore, there is little hope for a significant increase in production activities within the industry in the short term. According to statistics from China Fertilizer Network, as of now the overall operational rate of urea production enterprises is 46.28%, with a daily production volume of around 129,900 tons; this figure may see further declines in the future. Secondly, the liquid ammonia market has seen a strong rebound, with prices rising significantly in various regions. In addition to urea, liquid ammonia manufacturers are also affected by environmental regulations and thus reduce production or cease operations; in particular, the phasing out of the capacity of solid sulfurization beds at some enterprises in Henan province is underway ； Additionally, in the Southwest region, there is a limited supply of liquid ammonia, resulting in extremely tight market conditions. The local price of liquid ammonia has risen to around 3,350–3,500 yuan per ton. In other regions, prices have also increased by approximately 50–200 yuan per ton. The trend is expected to remain steadily upward. This provides strong support for urea producers in terms of securing a stable supply of liquid ammonia. From a profitability standpoint, some companies may shift their focus toward liquid ammonia production; it is entirely possible that they will switch to producing liquid ammonia instead. Once again, the demand for urea remains relatively steady. Following the failure of the export bids, manufacturers shifted their focus back to the domestic market. However, it was currently the off-season for agricultural demand in China; at the grassroots wholesale level, there were prices but no buyers. Small and medium-sized traders avoided purchasing urea at high prices, opting instead to wait and see. Even major agrochemical distributors became more cautious about buying urea at elevated prices, generally opting for short-term, quick, and immediate purchases as needed ； In addition, environmental regulations limiting production have also led to a reduction in the operating capacity of some compound fertilizer manufacturers. The demand from plywood factories for urea is ultimately limited; given the cautious purchasing attitude on the part of downstream buyers and the resistance caused by high prices of urea, the demand side in the urea market is shrinking, with few large-scale purchases being made. Overall, the reason for the persistent rise in urea prices is simple: its recent trend has remained positive despite the domestic measures of gas and production restrictions. It is expected that urea prices will see further modest increases due to the tight supply situation. However, these restrictions are not something new, and their impact will gradually diminish over time. (Tan Junying)