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Urea prices are rising again, which is really worrying! Author/Source: China Fertilizer Network Date: 2021-07-26 Clicks: 6 As is well known, urea prices rose again over the course of a week. From July 19 to 24, the purchase price of urea by compound fertilizer manufacturers in Linyi increased from 2730 yuan per ton to around 2820 yuan per ton. The ex-factory prices of urea manufacturers in Shandong’s Lianghe area also rose by 40–50 yuan per ton, exceeding the highest levels seen during the summer! In the first half of the week alone, the prices offered by urea manufacturers in regions such as Henan and Shanxi declined slightly due to transportation disruptions caused by heavy rains and the winding down of demand in Jiangsu. The topic builds on an article written by Zhongfei Net’s Xiao Che at the beginning of the week; this price increase is attributed to the actions of urea intermediaries at the ports. The manufacturers whose prices have risen are those that have an advantage in shipping urea to ports, or those with significant industrial demand in the surrounding areas. Of course, the daily production of urea is currently below 150,000 tons, and there has been a sharp drop in the prices of urea manufacturers since July, followed by a slight rise and then another drop – which has led to an increase in orders. Thus, the reasons for this price increase in urea seem quite valid. Firstly, exports may be promising. On the evening of the 23rd, bidding took place in India, and the lowest bid amount was 509.5$ FOB for ports on the East Coast (the previous bid had been 509.95$ FOB). Considering shipping costs and fees of 35$, the total cost comes to approximately 474.5$ FOB in China. At an exchange rate of 6.46, plus port charges of 60–80 yuan, the delivery cost at ports such as Yantai Port is around 3000 yuan. After deducting the shipping costs from Chinese urea manufacturers to those ports, and converting the quantity from tons to bags, urea manufacturers should have some room for price increases; after all, the current export price offered by urea manufacturers in Shandong is only 2800 yuan per ton. Unlike at the end of June, there are more urea intermediaries willing to gather their goods at the ports; urea supplies from Shandong, Hebei, Inner Mongolia, Shaanxi, and possibly Xinjiang all appear at the ports. After all, it is the off-season for domestic trade, and industrial demand has led to a rise in prices; only in the absence of exports will urea prices fall. Conversely, it is reasonable for urea manufacturers to seek higher prices as well. Especially given the high volume of exports, China’s urea exports from January to June reached 2.42 million tons, a 40.9% increase on a year-on-year basis. With low domestic urea inventory in the second half of this year, a continued demand gap in India, and inflation, urea prices are likely to remain high for the most part. Secondly, agricultural demand must come to an end completely; although industrial orders have become sluggish, it’s still better than nothing. With a slight increase in pending orders from urea manufacturers, it is only natural for prices to rise. In particular, the prices of pending orders for urea manufacturers vary widely; a slight increase in price is sufficient to secure some new orders. Such an increase also helps manufacturers with shipments and buyers with their sales, as there is a slowdown in demand from industry and agriculture in the coming period, and too large an increase could alienate customers. Thirdly, there are a slightly higher number of urea plants that happen to be under maintenance at the time. A large factory in Shandong has reduced its production by half; another large factory in Shandong is scheduled for maintenance work; a large factory in Hebei has stopped production; two large factories in the Northeast are undergoing maintenance as planned, and so on. The daily urea production is below 150,000 tons. In the absence of exports, such a supply level is considered relatively high for the off-season. On the other hand, urea manufacturers aim to raise prices as much as possible, only reserving the option to increase prices further if that proves impossible. Having talked about manufacturers, let’s now discuss the concerns of buyers: on one hand, amid inflation, both export buyers and industrial buyers are particularly inclined to use urea, as the risk of losses is relatively low. However, July and August are most likely to be the slowest periods of the year, so a price increase at such an early stage is worrying; buying now means risking a sharp drop in prices, while not buying means missing out on a good opportunity to deal in urea. Also, the delivery times in the industrial sector either get advanced appropriately or have to be delayed due to high prices, making it difficult for buyers to determine an appropriate price. On the other hand, export tariffs could be imposed at any time, exports might be suspended at any moment, and there could be new developments in terms of currency, such as interest rate increases for the dollar. Additionally, urea futures prices are volatile, and so on. With so many interfering factors, it becomes increasingly difficult to determine whether speculation plays a larger role or actual price increases do in each round of price hikes for urea. In summary, this round of urea price increases represents an attempt to push prices higher at current high levels. Since the future is uncertain, perhaps it would be better for us buyers to purchase as needed and adapt to changing circumstances with flexibility (Che Yanhong)