Demand is low, yet urea prices remain high

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Demand remains weak, yet urea prices stay at high levels
Author/Source: China Fertilizer Network
Date: January 11, 2021
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Recently, the fertilizer market has performed rather mediocrely, with very few new orders placed for most mainstream fertilizer types. In the case of urea, despite recent environmental regulations and the impact of the pandemic, overall new order activity has been relatively sluggish. Nevertheless, urea prices have remained at relatively high levels. At present, the prevailing ex-factory prices for urea in Shandong Province range from 1,820 to 1,830 yuan per ton; compound fertilizer manufacturers in Linyi pay around 1,850 yuan per ton for urea. In Hebei Province, the typical ex-factory price is between 1,810 and 1,830 yuan per ton; in Henan Province, it ranges from 1,830 to 1,850 yuan per ton. In Shanxi Province, the standard ex-factory price is 1,740 yuan per ton for regular granules and 1,780 yuan per ton for large granules. In Heilongjiang Province, the prevailing ex-factory price stands at 1,960 yuan per ton, while in Xinjiang Province, it fluctuates between 1,420 and 1,500 yuan per ton. Although transaction activity has been relatively subdued in some regions, manufacturers remain determined to keep prices high. For instance, in Heilongjiang Province, the reference price for small granules delivered to destinations is approximately 1,900 yuan per ton; nonetheless, certain manufacturers continue to maintain elevated pricing levels. Several factors contribute to the current high urea prices: firstly, inventories held by manufacturers are currently at low levels. Since last October, a new round of commercial stockpiling of fertilizers has been implemented in the domestic market. For urea, which accounts for a large proportion of these fertilizers, the volume of commercial stockpiles is quite substantial. Moreover, this year the oversight of such stockpiling efforts is stricter than in previous years; as a result, many urea manufacturers have orders for stockpiling. Although there has been relatively little actual demand in the urea market since mid-December, these companies, backed by their stockpiling orders, have sufficient orders to fulfill, which means that the overall inventory levels of most urea manufacturers remain low. Some companies that have suspended production even have inventories of only a few thousand tons, and they are not in a hurry to sell, allowing them to maintain control over pricing for now. Secondly, the resumption of operations at urea producers has been slow. Recently, with the resumption of production of large-grain urea in the Jincheng area of Shanxi, overall urea production in China has also begun to recover. At present, the daily physical output of urea across the country exceeds 120,000 tons. Recently, some enterprises that use gas as a raw material have also started to resume production. However, considering the current situation of urea producers, urea produced in areas with high prices is not yet affected by supplies from other regions. There is a shortage of low-priced urea available on the market; even if traders sell at prices slightly higher than those set by manufacturers, the available supply remains limited. Based on the resumption plans of most enterprises that use gas as a raw material for urea production, it is likely that these enterprises will only resume operations in mid-to-late January, and priority will be given to supplying the local markets first. As a result, there will likely be limited amounts of low-priced urea available from other regions in the short term, allowing prices to remain stable for some time. Finally, there is still potential demand in the future. It must be admitted that at the current stage, the demand for urea in the market is relatively limited, with downstream compound fertilizer manufacturers and sheet metal factories being the main consumers. However, there is potential demand in the future, and we are now entering the peak season for the production of winter storage fertilizers. As is customary in the agricultural sector, there is a surge in purchasing demand around the Spring Festival. Moreover, as environmental regulations become less stringent, the downstream industrial market is gradually recovering, meaning there is still potential demand in the market going forward. Some manufacturers are optimistic about the future market and expect prices to rise. In summary, although demand for urea in the market has been modest recently, supported by the factors mentioned above, overall prices remain high; in some areas, prices have even seen a slight increase. However, as production gradually resumes, the room for further price increases is likely to be limited.