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Urea breaks 2700 again – where is the savior? Author/Source: China Fertilizer Network Date: 2021-09-22 Clicks: 6 The three-day Mid-Autumn Festival holiday saw even greater activity in the urea market, with prices rising from a slight increase to a significant one. The ex-factory prices of urea manufacturers in Shandong’s two river regions once again exceeded 2,700 yuan per ton. Prices of urea also rose to some extent in September in previous years, but during these just three days, the price increase was nearly 100 yuan per ton. Moreover, in a season when demand is not very strong, the ex-factory prices in Shandong rose from 2,380–2,400 yuan per ton at the end of August to 2,700 yuan per ton within just 20 days – something truly unprecedented and alarming. What exactly is the reason for this price increase? Where is the savior to drive urea prices down again? First, international urea prices have soared. As of September 17, the offshore price of urea in countries such as Egypt had risen by 30 dollars per ton or more on a weekly basis; the high end of this price range was 520 dollars per ton. In China, the high end of the offshore urea price was also above 430 dollars per ton. This is all assuming that India has not announced any tender process after two months of delay. Given such a large price difference, if India does announce a tender, it seems that regardless of whether China exports urea or not, domestic urea prices in China will experience another round of speculative increases. In short, one of the solutions to prevent another drop in urea prices is for China to reduce or stop exporting urea, regardless of how high international urea prices rise; it would be best if the over 400,000 tons of urea stored in our ports could be brought back into the country in appropriate amounts. Secondly, the supply of urea has dropped sharply. Recently, with the approval of the State Council, the National Development and Reform Commission issued the “Plan for Improving the Dual Control System over Energy Consumption Intensity and Total Volume” (FDHC [2021] No. 1310, hereinafter referred to as the “Plan”), which outlines the general requirements, main objectives, tasks, and safeguard measures for effectively implementing dual control over energy consumption in the new era. Against this backdrop, several urea manufacturers in Inner Mongolia that industry insiders had been expecting to resume operations following maintenance work were originally scheduled to do so in late September, but there may now be uncertainties ； Urea manufacturers in Shanxi, Henan, Jiangsu and other regions may see delays in resuming production after shutting down, or they could face the risk of suspension of operations. As of September 18, the daily production of urea was as low as 133,000 tons. Given that a daily production level of over 145,000 tons is needed to achieve a relative balance between supply and demand during the off-season, some buyers purchased urea in a panic, which led to this sharp rise in prices. The second factor that could help prevent another drop in urea prices is an increase in the daily production volume of urea. However, it seems that we will have to wait until after the National Day holiday, when safety inspections and restrictions on energy consumption can be temporarily put on hold. By late October or November, the situation of urea production being halted will become even more severe. Thirdly, beyond the dual controls on energy consumption, there is a growing concern within the industry regarding the shortage of coal and gas for urea production. Recently, YARA, the world’s second-largest producer of ammonia fertilizers, issued a statement on its official website announcing partial production cuts. This is another consequence of the European gas crisis, following the announcement by ammonia fertilizer giant CF Industries last Thursday to shut down its plant in the UK. Yara stated in a statement that record-high European natural gas prices are affecting the profitability of ammonia fertilizer production; as a result, the company will reduce its ammonia fertilizer production capacity in Europe by 40%. A company spokesperson said that Yara’s ammonia fertilizer production capacity in Europe is around 4.9 million tons per year, with approximately 2 million tons being affected by this situation. Urea manufacturers in our country were also informed of this at an early stage. Given the high prices of natural gas and the need to ensure supply for domestic use during winter, these manufacturers will reduce their production capacity at the end of September or in late October, as well as in November, or they will enter maintenance mode ahead of schedule during the off-season. The hope of bringing urea production back to 160,000 tons per day by the end of October seems to be fading. The third factor that can help prevent another drop in urea prices is the rapid production of high-quality urea by a new plant in Shandong and another new plant in Anhui. Additionally, before winter arrives, both coal-based urea manufacturers and gas-based urea manufacturers should be able to resume operations or halt production only slightly later, thereby helping to reduce the pressure on end-users who have urgent demand for urea. In short, winter storage of urea seems to be a complicated process; it’s better not to exacerbate the situation. Industrial customers with genuine needs should purchase only what they need, and exports should be minimized if possible – it would be best to avoid exporting altogether. Urea is one of the most important fertilizers, and it’s hoped that the relevant authorities will find ways to streamline the supply chain as soon as possible, so as to prevent farmers from facing high costs in farming. Of course, amid the global pandemic and inflation, it seems unlikely that fertilizer prices will drop from their current high levels before the end of the year; we can only hope that urea prices will decline slightly once they reach a certain high level. (Cheyan Hong)