Urea prices reach new highs again during the off-season

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Urea prices reach new highs even during the off-season. Author/Source: China Fertilizer Network. Date: July 26, 2021. Click-through rate: 10. Recently, India announced the results of its tender: A total of 12 suppliers submitted bids for this tender, with the overall volume reaching 1.651 million tons of urea. Of this amount, 711,500 tons were intended for the East Coast, while 894,600 tons were designated for the West Coast. The volume of bids at FOB prices amounted to 45,000 tons. Meanwhile, demand for urea, which is typically low during the off-season, has once again increased, and prices show signs of rising. Currently, the prevailing ex-factory price of urea in Shandong Province is 2,790 yuan per ton (the same unit applies hereafter). In Linyi, compound fertilizer manufacturers are purchasing urea at prices ranging from 2,820 to 2,830 yuan per ton ； In the Hebei region, the prevailing ex-factory price for urea is 2,810 yuan ； The mainstream ex-factory price of urea in Henan region is 2,720–2,760 yuan ； In the Shanxi region, the prevailing ex-factory price for urea is 2,610 yuan, while that for large-particle urea is 2,570–2,580 yuan. Unlike last year, when the lowest prices for the entire year were recorded in July and August, this year’s off-season urea market prices have not shown a downward trend; instead, they have continued to rise. There are several key reasons for this, which differ from last year: Firstly, the overall context is different. This year, affected by inflation, the prices of most commodities have risen to varying degrees. Meanwhile, the price of coal, which is a key raw material for urea production, has remained at a high level over the past six months. Internationally, urea prices have also been on the rise since December last year. Under these circumstances, domestic urea prices have continued to climb. This is the main reason why urea prices have remained high since the beginning of this year. 　　Secondly, bidding activities in India are gaining momentum. Statistics show that last year, India purchased a total of 9 million tons of urea throughout the year. So far this year, excluding the currently ongoing Indian tender, the country’s total urea purchases have reached 2.7 million tons—a figure slightly lower than the same period last year ； Additionally, India’s demand for fertilizers has remained at a relatively high level this year, with significant potential demand expected in the future. In recent months, India has been making frequent purchases of urea. Meanwhile, due to the impact of the pandemic globally, the supply of urea has decreased. Against this backdrop, international urea prices have shown a tendency to rise rather than fall. Based on the latest international reference prices, the estimated FOB price for China exceeds 3,000 yuan per ton. Under these circumstances, there is a likelihood that domestic urea prices will also rise. 　　Finally, low startup levels coincide with the premature release of demand. Recently, urea producers in many regions of China have temporarily suspended or limited production to varying degrees. Given that they had been operating continuously for some time prior to this, certain pieces of equipment posed potential safety risks. Additionally, demand in China during July and August tends to be relatively modest; as such, it is customary for companies to conduct maintenance during this period. Coupled with the relocation of some factories, the daily physical output of urea in China has dropped below 150,000 tons. Meanwhile, domestic market demand has recently begun to pick up. In some downstream sectors, due to longer procurement cycles and the continuous price increases in the fertilizer market this year, buyers are becoming more anxious, leading to a rise in their demand for urea. All these factors have resulted in a situation where the urea market is experiencing robust activity despite being in its off-season ； Apart from the increase in inventory levels in Shanxi due to poor transportation, the inventory levels at most urea factories remain low, and prices have shown a certain upward trend. 　　In summary, although relevant authorities have held talks with some fertilizer companies recently, given the current situation of urea, even during the off-season, the overall production level of urea in China remains relatively low. There is still demand from both domestic and international markets, and most companies have low inventory pressures. Therefore, there is no risk of a decline in urea prices in the short term; in fact, prices may even continue to rise. Some manufacturers might pause setting prices after prices have risen for a while. On the other hand, since the cost of urea is currently high, storing it hastily could entail certain risks. 　　(Wu Wenchao)