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Urea prices remain high, causing concerns; ammonium chloride is in short supply yet its price remains stable. Author/Source: China Fertilizer Network Date: 2020-12-22 Clicks: 3 High prices for urea are not uncommon, but recently its transaction price has seen a slight decline. Due to limited supplies of raw material natural gas, environmental regulations restricting production, and power shortages in some areas, urea production has remained at low levels. To counter the resistance from downstream users to such high prices and to maintain the illusion of low production levels despite high prices, it seems that there’s an element of fabricating reasons to cover up the actual situation； At present, there are very few urea production facilities operating in the southwestern region. In Shanxi, strict environmental regulations limit urea production; the prevailing selling price is around 1,740 yuan per ton. Meanwhile, compound fertilizer manufacturers in Linyi, Shandong, where industrial demand is weakening, are purchasing urea at a price of 1,830–1,840 yuan per ton. It seems likely that urea prices could rise due to speculation, but the drop won’t be significant. However, during this period, urea provides good support for ammonium chloride prices. Currently, the market for ammonium chloride in China is generally stable, with manufacturers having orders to fulfill. Some companies, however, need to control the number of orders they take on or decide not to accept any orders for the time being; the industry as a whole remains cautiously optimistic ； Currently, the mainstream ex-factory price for wet ammonium in the East China region is around 440–460 yuan per ton, while the price for high-quality grades is 500 yuan per ton. The mainstream ex-factory price for dry ammonium is around 560 yuan per ton. In some areas of Southwest China, the production capacity of ammonium chloride plants has decreased slightly; coupled with minor adjustments in the production priorities of certain companies, there is a relative shortage of ammonium chloride supplies in those areas. The delivery price of some dry ammonium shipments to Guangdong and the Yunnan-Guizhou region is around 700 yuan per ton. Therefore, the future trend of ammonium chloride prices will need to be determined based on the following factors. Firstly, the operation rate of caustic soda manufacturers remains around 70%, with no significant decrease or increase in operations in the short term. According to statistics from China Fertilizer Network, the overall operational rate of domestic caustic soda production enterprises is around 68.4%, with a daily production volume of approximately 35,800 tons. Ammonium chloride stocks are at low levels, while soda ash stocks remain high and continue to increase. Recently, prices of soda ash have reached bottom levels in some areas; enterprises show a tendency or willingness to raise prices, possibly in order to stabilize the market. Considering costs, this implies that most enterprises will not reduce their production levels under normal circumstances ； Additionally, apart from the fact that in some ammonium chloride producers using natural gas as a raw material in the Southwest region, operating rates have slightly declined due to limited natural gas supply and a shift in production focus toward liquid ammonia; in Henan Province, production has been restricted under strict environmental regulations; and one plant in Tianjin underwent temporary maintenance, all other ammonium chloride producers across other regions are operating at normal levels. Secondly, ammonium chloride manufacturers have a sufficient amount of orders pending, but new order volumes remain modest. According to feedback from various factories, there are sufficient orders ready to be processed; some can be handled until the end of the month, while others can be dealt with up until around the Spring Festival ； However, the operating rates of downstream compound fertilizer manufacturers and enterprises that produce granulated ammonium chloride are slightly lower. There were sufficient reserves of ammonium chloride in the earlier period, and purchases of this substance are now made on a demand-based basis. Additionally, as the Spring Festival approaches, some smaller and medium-sized compound fertilizer manufacturers as well as those producing granulated ammonium chloride are likely to reduce production or even shut down, which will certainly lead to a decrease in the demand for ammonium chloride ； This year, the ammonium chloride market lacks any guarantee policies, so traders are cautious in their dealings with this product; they maintain an appropriate level of inventory to feel secure, and then purchase as needed. However, even though demand for new orders of ammonium chloride has declined, there is an overall increase in demand for ammonium chloride in certain areas; this is due to the new high-tower compound fertilizer production capacity in the Northeast region. Given the high price of urea, it is not unusual to purchase ammonium chloride as a substitute for some of the urea used ； In the long run, given the pressure to protect the environment and the trend toward phasing out outdated production capacities, if some of the production capacity of certain ammonium chloride manufacturers were to withdraw from the market as planned, the supply of ammonium chloride would decrease, which is a positive development for the future. With urea prices remaining high and stable, production will continue to operate at low levels in the short term due to factors such as gas and electricity restrictions And environmental regulations limiting output; as a result, prices are unlikely to drop. This provides strong support for ammonium chloride prices. Overall, factors such as environmental-related production restrictions, limited natural gas supply, and adjustments in the location of production hubs mean that the operating rates of ammonium chloride producers are unlikely to rise significantly. Additionally, with a relatively ample backlog of orders, the market outlook for ammonium chloride remains positive. However, considering the timing around the Spring Festival and the sufficient inventory levels among downstream users, demand for ammonium chloride is expected to remain relatively subdued. Under the combined influence of both positive and negative factors, the ammonium chloride market is anticipated to remain stable, with prospects for further improvement. Most producers will continue to fulfill their existing orders. (Tan Junying)