Urea prices dropped and then rose again; wasn’t it supposed to drop to 2300?

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Urea prices dropped and then rose again; wasn’t it supposed to drop to 2300? Author/Source: China Fertilizer Network Date: July 21, 2021 Click-through rate: 6 As is well known, since early July, the quoted prices of urea manufacturers have gone through roughly two rounds of fluctuations. This mainly applies to manufacturers in the Central Plains region and those shipping products to that area. Taking a major manufacturer in Shandong as an example, from July 1 to 7, its ex-factory price dropped from 2,740 yuan per ton to between 2,620 and 2,650 yuan per ton; thereafter, it gradually rose to 2,760 yuan per ton by July 19. Of course, during the period from the 15th to the 19th, the actual transaction prices set by Shandong-based manufacturers saw a notable decline. The purchase price for urea by Linyi compound fertilizer plants fell from a peak of 2,820 yuan per ton down to 2,730 yuan per ton; on the 20th, however, it rebounded to between 2,760 and 2,800 yuan per ton. 　　Given these repeated price increases, we can generally conclude that urea prices are prone to rising rather than falling. So, now that they have fallen and then risen again, how long will this trend last? Will it still be possible to reach the bottom level of 2,300–2,400 yuan per ton, as we speculated during the previous price drop period in July and August, when manufacturers in Shandong might reach that level? 　　Firstly, in terms of timing, the upward trend in the prices quoted by urea manufacturers from July 8th to 18th was mainly due to the raw material procurement by industrial compound fertilizer producers for autumn fertilizer production, as well as the demand from industrial power plants for urea. A minor factor was also the demand for urea during the top-dressing period for summer corn in the Central Plains region. During this period, India announced new tenders. On the evening of July 13, RCF India issued a new tender for the import of urea, with the submission deadline on the 22nd; at that time, information such as the number of bids and prices may be made public. The validity period for submitting bids is until the 30th, while the shipping deadline is August 31st. After all, prices always rise whenever there are tenders, and especially amid global inflation, there are always distributors who hope to be able to export a slightly larger amount of urea. 　　Secondly, from the perspective of the psychology of buyers and sellers, there is a final wave of demand in summer and the first wave of demand in autumn. During this period, the inventory pressure on urea manufacturers is reduced by a few orders from key clients, and price increases facilitate their sales. Especially after a period of price declines, manufacturers always hope to raise prices a bit earlier than expected. Buyers, on the other hand, hope that prices will drop further before they make purchases. Amid this psychological tug-of-war between both parties, it’s natural for urea manufacturers to raise their prices. Although some buyers fail to get the low prices they hoped for, due to their urgent needs, they still have to purchase the product in appropriate quantities. Thus, the price increase becomes quite logical. 　　Thirdly, the recent trend in urea prices has been largely in line with the expectations of industry experts and those on Zhongfei Net; after rising for 7–10 days, prices started to fall. Of course, what surprised both buyers and sellers was that some factory prices reached their highest levels of the summer. In any case, the key goal for urea manufacturers was to be able to sell their products successfully. The reason for this decline is simply that the demand during this period isn’t very high; manufacturers in the northeast, northwest, southwest, and west regions rarely follow suit. As we mentioned at the beginning, only those urea manufacturers who supply goods to the Central Plains region see their prices rise slightly. A general decline in urea prices throughout the remaining days of July and in August is what’s expected during the off-season. In particular, recent heavy rains in areas such as Jiangsu, Anhui, and Shanxi have led to an early end to the fertilization process or difficulties for urea manufacturers in shipping their products, which explains why the price drops in recent days are quite timely. 　　Finally, this recent price drop was quickly followed by a rebound. The reasons for this are: first, India’s tender; second, industrial demand; and third, the fact that there were relatively many urea producers undergoing maintenance at the time. For now, only the ex-factory prices of a few urea manufacturers capable of shipping to ports have risen by 20–30 yuan per ton. This increase is merely riding on the wave of India’s tender announced on the 22nd, and for the time being, it applies only to purchases made by industrial compound fertilizer producers, among others. The actual peak period for fertilizer use in autumn won’t come until October, so the demand window can be quite lengthy. Whether this price hike will spread and persist depends on whether exports manage to exceed 300,000 tons as expected. At present, most urea producers are likely to remain inactive. However, should buyer sentiment turn slightly bearish in the coming days, there is a slight possibility that urea prices may gradually decline, potentially reaching a bottom level of 2,300–2,400 yuan per ton. The key factor here is that overall social inventory levels of urea remain low, making it difficult for prices to fall significantly. (Che Yanhong)