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Urea prices to rise by year’s end – Will winter stockpiling bring good fortune at the start of the new year? Author/Source: China Fertilizer Network Date: 2020-12-21 Clicks: 16 The winter stockpiling of fertilizers, which was a topic of discussion throughout the winter, continues to be a hot topic nowadays. The most notable development recently is the reversal in the domestic urea market trends – after failing to meet certain targets, urea prices, which were not expected to rise, actually increased, marking yet another instance of price increases during a off-season period. At present, due to constraints related to gas supply and environmental protection, a large number of urea factories in China have ceased operations; regions such as Henan, Shanxi, and Sichuan now have a daily production capacity of less than 120,000 tons. The significant reduction in supply has supported rising urea prices, with market trends expected to remain stable and upward in the short term. The current mainstream prices for winter storage of compound fertilizers are now largely clear, with overall levels having risen significantly compared to earlier periods. Taking the 45% sulfur-based balanced fertilizer commonly used in the Northeast region as an example, the current mainstream ex-factory price is 2150 yuan per ton or more, representing an increase of over 200 yuan per ton since the start of winter storage. As expected, the price increase was not accepted by downstream parties, leaving the market in a stalemate for a long time. As the seasons progress, the winter storage market may see activity increase around New Year’s Day. Coupled with the sudden rise in urea prices, the market for compound fertilizers at the start of the year is worth looking forward to. Firstly, the raw materials are favorable. The increase in the price of compound fertilizers during the winter storage period is largely due to rising raw material costs; not only is the price of urea high, but the prices of phosphate and potassium fertilizers remain elevated as well. The price of monoammonium phosphate remains stable. Although purchasing activity by compound fertilizer manufacturers has slowed down, monoammonium phosphate plants have a sufficient amount of orders pending fulfillment, which drives up prices. The few low prices available on the market are due to supplies held by certain traders only ； The price of potassium fertilizers has remained relatively stable; domestic potassium chloride is in short supply and is mainly supplied in the early stages. Markets in border areas are watching to see if Russia will suspend shipments temporarily, which keeps prices firm. In the short term, the costs of raw materials for compound fertilizers remain high, providing ongoing support. Secondly, there are positive demand factors. The winter storage market for compound fertilizers spans an extended period, with downstream purchases spread out over different times. At present, aside from the decent low-price sales by compound fertilizer manufacturers in September and October, most companies are seeing fewer new orders; the actual pace of stockpiling by downstream buyers is somewhat slow, with inventory levels in most areas ranging between 40% and 50%. Demand might increase around New Year’s Day. One reason for this is that price increases have already taken place, and there are no signs of a significant downturn in raw material prices. If there are plans to make purchases before the Spring Festival, it would be possible to place orders and replenish stocks taking advantage of the favorable discounts offered during various manufacturers’ ordering events at the beginning of the year ； The second reason is that the local wholesale stage has gradually begun, and existing stock levels are being depleted. To ensure an adequate supply before the Spring Festival, distributors will inevitably replenish their stocks based on their own circumstances. Finally, there are positive factors related to competitors. When it comes to competitors of compound fertilizers, in the northern regions diammonium phosphate is a key competitor. The price of diammonium phosphate has seen a sharp rise from autumn through winter, continuing to climb steadily; with the support of the export market, its price has already reached high levels. Although major importing countries such as India and Pakistan have temporarily suspended their purchases of diammonium phosphate, domestic inventory levels of this compound are below those seen in the same periods in previous years. Once demand from both domestic and international markets picks up again in the short term or after the Spring Festival, prices of diammonium phosphate are likely to remain high. Rising prices of competing products provide further justification for an increase in the price of compound fertilizers, as the overall price level is currently only on par with that of the same period last year. In summary, although price increases in urea at the end of the year are not common, they can indeed boost confidence in the winter storage market to come; prices of compound fertilizers are likely to fluctuate within a narrow range while remaining relatively stable. (Feng Hongyang)