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Urea prices are rising sharply – is there nothing that can be done about it? Author/Source: China Fertilizer Network Date: 2021-01-15 Clicks: 19 The price of urea has recently been continuously challenging the traditional perceptions within the industry regarding off-season periods. It was previously believed that there was a clear distinction between off-season and peak seasons, with lower prices during off-seasons and higher prices during peak seasons – but the situation with urea in recent years, especially at present, is not like that. Currently, the market for urea in China is continuing to heat up, with prices rising rapidly; in many areas, the price has reached 1,900–2,000 yuan per ton. Urea at the previous price of 1,500–1,600 yuan per ton can no longer be found in areas other than Xinjiang, and even in regions traditionally considered to have low prices such as Inner Mongolia and Shanxi, such prices are no longer available. However, upon closer consideration, the rapid rise in urea prices seems to be inevitable – driven by local outbreaks of the disease, insufficient supply of natural gas as a raw material in some markets, rising prices for natural gas and coal, or the shift to producing liquids such as ammonia, which offers higher profits. Urea prices have risen to high levels across various regions, and some companies still report a shortage of supply in the near term, with intentions to raise prices further. It is understood that in some areas of Hebei, despite the impact of the pandemic and resulting difficulties in exporting, local demand has still driven up prices. Currently, the average ex-plant price of urea in these areas is around 1,920 yuan per ton, while in Jiangsu the average ex-plant price is around 2,010 yuan per ton. In Linyi, Shandong, fertilizer manufacturers have raised their purchase price for urea to 1,970 yuan per ton. Given such high prices for urea, even if the downstream market is not very receptive to it, will the price of urea drop accordingly? On the one hand, there are no signs of an increase in the operating capacity of urea manufacturers in the short term. According to statistics from China Fertilizer Network, as of now the overall operational rate of urea production enterprises across the industry is as low as 43.24%, with a daily production volume of 121,400 tons. First, natural gas supply in the southwest region remains limited; although some urea manufacturers have said they may resume production by the end of the month or before the Spring Festival, there are still some uncertainties ； Secondly, local coal supply remains tight, prices are rising, and the costs for urea manufacturers are increasing ； Third, it is not ruled out that environmental inspections may lead to production restrictions on urea manufacturers, or that temporary equipment failures may result in a decrease in their operating rates ； Fourthly, the price of liquid ammonia in China is currently generally high; in the southwestern region, most prices have already exceeded 4,000 yuan per ton. Some companies have shifted part of their production focus from urea to liquid ammonia. A few companies in key production areas such as Ningxia and Shandong have done this, while there are also companies in regions like Anhui whose urea production facilities continue to operate for liquid ammonia production. On the other hand, although the demand for urea is progressing well, the expected decline in downstream operations still needs to be taken into account. Large agrochemical suppliers are somewhat concerned about how long the upward trend in urea prices will continue; coupled with the existing stock of urea on hand, wholesale prices in the market are chaotic, and they are cautious about placing new orders ； The overall demand in the agricultural sector at the grassroots level is limited; some local markets such as those in Henan, Jiangsu, and Anhui rely on fertilizer supplies, but the amounts used are small. Moreover, since spring planting is still some time away, urea prices remain high, so both the agricultural supplies market and farmers are reluctant to stock up in advance and prefer to wait and see what happens. At present, the main factor supporting urea demand is industrial use: firstly, there is a continuous demand for urea from plywood factories, and secondly, from compound fertilizer manufacturers. In particular, in certain areas where the pandemic has resurged and transportation has been disrupted, some compound fertilizer companies have accelerated their purchases of raw materials, increasing the volume of purchases – whether out of necessity or as a precautionary measure. However, as the Spring Festival holiday approaches, some compound fertilizer manufacturers and plywood plants are likely to gradually reduce their production capacity or shut down for the holidays, which means that purchases of urea will decrease over time. Overall, in the short term, the operating levels of urea producers are unlikely to rise significantly. Supported by agricultural demand in certain regions as well as industrial efforts to stock up on urea in advance, urea prices are expected to remain high in the short term, with prices in some areas even seeing further increases ； But in the long run, high prices for urea during the off-season are indeed abnormal, and there is a risk or expectation of price declines. (Tan Junying)