Urea prices have risen too much; a trend of price cuts is emerging

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Excessive increases in urea prices lead to a trend of price cuts Author/Source: China Fertilizer Network Date: 2021-01-22 Clicks: 28 The surge in urea prices is gradually subsiding; in some markets, urea prices have dropped after reaching high levels. This trend of price cuts originated in Shandong, and currently many companies report that sales of urea have slowed down, with increased pressure to sell. There is also a growing resistance among end-users to high-priced urea. Even if prices do not rise any further or even decrease slightly, sales conditions remain poor； Fertilizer use in rural agriculture is declining, industrial demand has become more moderate, and a climate of caution prevails in the market. Additionally, the issue of natural gas supply in the southwest region, which has attracted much attention, may see improvement by the end of the month; once that happens, fertilizer production companies will resume operations, leading to increasingly negative factors and possibly further drops in prices. 　　Urea prices have declined steadily in various regions, with a predominantly bearish trend observed. The prevailing ex-factory price of urea in the Shanxi region is around 1,920 yuan per ton. In Linyi, Shandong, fertilizer manufacturers are offering a purchase price for urea of 2,000 yuan per ton, while in some areas of the southwest the purchase price ranges from 2,050 to 2,080 yuan per ton. With a decline in urea prices underway, its future trend is of great interest; this depends on various objective factors such as supply and demand as well as liquid ammonia levels. 　　Firstly, the operating capacity of urea manufacturers remains low; currently, some urea plants that use natural gas for production in the southwest region are still shut down or operating at reduced capacity. Some urea plants in the northeast region have ceased operations, and some plants in Inner Mongolia that use either natural gas or coal as feedstock are also shut down. There are no plans to resume production in the short term. As for the issue of natural gas supply, the situation will become clear by the end of the month, though there are still uncertainties ； In addition, the price of liquid ammonia remains high, with increases observed in many regions. Compared to urea, selling liquid ammonia offers greater advantages; even if the price of urea drops, liquid ammonia can serve as a backup option. As such, it is possible that some companies may shift their production focus to liquid ammonia in order to mitigate the impact of falling urea prices ； However, according to some urea manufacturers in the southwest region, the natural gas supply may improve by the end of the month, which will lead to an increase in the supply of urea and liquid ammonia ； Moreover, a few urea manufacturers in Anhui and the Northeast regions plan to resume production before the Spring Festival, and sales of liquid ammonia will slow down during this period. From the perspective of transportation and storage, these companies will shift their focus back to urea production. 　　Secondly, the cost pressures on urea manufacturers cannot be ignored. Currently, coal supply is tight in markets across the country and prices are rising; natural gas supply is limited, forcing some urea manufacturers that rely on gas to suspend production or reduce output. The pressure associated with raw material costs is high, and there is little chance of a significant improvement in the short term. 　　Once again, there are sufficient pending orders for high-priced urea, but new orders have slowed down. Agricultural purchases in regions such as Jiangsu, Anhui, and Henan have declined. At the grassroots level, farmers are wary of purchasing urea at high prices. With limited fertilizer demand, there are numerous instances of inverted market pricing; consequently, a wait-and-see attitude prevails, with buyers opting to purchase only when necessary ； Large agrochemical suppliers are quite concerned about the high price of urea; they have recently increased their stockpiles at high prices ； The overall operational rate of the industrial compound fertilizer industry is low, and terminal demand is limited. In particular, the high cost pressures reduce the willingness to purchase expensive urea; as a result, some small and medium-sized compound fertilizer manufacturers opt to use ammonium chloride in place of some of the urea ； Additionally, as the Spring Festival approaches, some small and medium-sized compound fertilizer manufacturers may suspend operations or reduce production, and some traders will also cease purchasing urea ； Moreover, changes in transportation must also be taken into account; some road transport services cease before the Spring Festival, which will increase the difficulty for companies to ship goods. 　　Overall, urea manufacturers still have high-priced orders received in advance to support them; thus, a situation of inverted market prices is inevitable. Describing the urea market over these two years as one in which demand remains strong during off-peak seasons and weak during peak seasons is more appropriate. The downstream market shows strong resistance to high prices, and as a result, new orders for urea from manufacturers are decreasing. Negative factors in the market are becoming increasingly apparent, and it is expected that urea prices will start to decline in a rational manner in the near future. (Tan Junying)