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Urea seems to be in short supply, yet prices keep rising – author/source: China Fertilizer Network, date: 2020-12-18, clicks: 5. Factors such as environmental regulations restricting production, limited natural gas supply, and coal shortages have led to a continuous decline in the operating rates of urea manufacturers across various regions in China. For example, due to restricted natural gas supply in the southwestern and Inner Mongolia regions, the operating rate of urea manufacturers in Sichuan and Chongqing is only 9.2%. In regions such as Shanxi and Shandong, environmental regulations also result in low operating rates for urea production； As a result, domestic urea prices rose. However, given factors such as weakening demand and downstream resistance to high-priced urea, its prices inevitably fell. Thus, urea prices fluctuated continuously. As of now, the daily production volume of urea is only around 120,000 tons; despite this apparent shortage, prices have shown a pattern of rising briefly before falling again. According to statistics from China Fertilizer Network, the overall operational rate of domestic urea manufacturers is around 42.88%, and this figure has been declining for several days. In the near future, some urea producers plan to shut down their operations; at the same time, there are also a few companies that are undergoing temporary maintenance and will resume production soon. As a result, prices remain high. Currently, the mainstream ex-factory price of urea in Inner Mongolia is around 1610–1630 yuan per ton, while in Sichuan it is around 1900–1960 yuan per ton. However, as domestic demand weakens, urea prices have started to fall despite being at high levels; for example, some companies in Linyi, Shandong, have reduced their purchase prices for urea to 1830 yuan per ton, and there have also been slight drops in certain ex-factory prices. The industry is confused regarding the trend of urea prices, and the following factors will need to be monitored going forward to understand how urea prices will evolve. Firstly, the operation level of urea manufacturers will remain low in the short term. Due to limited domestic natural gas supply and tight coal supplies, the urea production plants that rely on gas in the southwestern region are operating at the lowest level. And even while efforts are made to meet civilian needs, industrial gas use is likely to remain low for some time, possibly until just before the Spring Festival ； Coal prices have risen; some companies say that not only have their costs increased, but the supply of coal is also tight ； Additionally, liquid ammonia, which is closely related to urea, has performed very well this year, with prices continuing to rise in many regions. For example, the standard ex-factory price of liquid ammonia in the southwest region has risen to around 3,600–4,000 yuan per ton, while in the northeast region the standard spot ex-factory price has reached 3,300 yuan per ton, with higher-end prices reaching 3,450–3,650 yuan per ton. Even though there is new production capacity for liquid ammonia, this has not had a negative impact on the current market conditions. Prices across various regions are currently 100–500 yuan per ton higher than they were during the same period in previous years, with the largest price difference observed in the southwest region. Therefore, if urea prices decline in the future, companies will still have the advantage of shifting their production focus to liquid ammonia. Secondly, domestic demand in the industrial and agricultural sectors is mediocre, with downstream industries showing less enthusiasm for purchasing high-priced urea. Currently, it is the off-season for agricultural demand in the country, and local markets are adopting a wait-and-see attitude ； Although large traders maintain some inventory, the high price of urea has reduced their enthusiasm for purchasing it. There are also many those who are bearish on the market. In addition, industry experts believe that the current high prices of urea are likely to result in a sluggish urea market in the spring ； Industrial compound fertilizer manufacturers are operating at a low level, and the sales of finished fertilizers are progressing slowly. Meanwhile, the prices of various raw materials for fertilizers have been rising steadily this year, increasing cost pressures. As the Spring Festival approaches, some compound fertilizer companies will inevitably shut down or reduce production, which will also lead to a decrease in the purchase of urea as a raw material ； At present, plywood factories are operating at a moderate level due to environmental inspections, and there has been no significant increase in the purchase of urea. Apart from the domestic urea market, there are no advantages in the international market; firstly, there are no announcements of tenders in India, and secondly, domestic urea prices are high, resulting in no advantage for exports. Therefore, from a demand perspective, it is also a trend for urea prices to decline from time to time. Once again, raw material costs provide strong support for urea production. Firstly, there is a limited supply of natural gas, the raw material used by urea manufacturers, and Secondly, coal supply is tight and its prices have risen, resulting in increased costs for these manufacturers; as a result, some of them are forced to operate at reduced capacity. In summary, environmental regulations that limit production, reduced output, and the shutdowns of urea manufacturers due to operational issues have led to localized shortages of urea, which keeps its price high or causes it to rise in some cases. However, as demand weakens, along with resistance from end-users to high-priced urea and the lower prices of other nitrogen-based fertilizers, urea prices will also decline to a moderate level. (Tan Junying)