The export of urea from Xinjiang is in progress

Thread Content

The export of urea from Xinjiang is in progress. Author/Source: Longzhong Information. Date: 2022-03-04. Clicks: 23. Xinjiang is one of the main regions in China for the production and distribution of urea. Currently, there are 13 urea production enterprises with a total capacity of 7.43 million tons, accounting for 10.11% of the country’s total capacity. According to Longzhong Data, the total physical production of urea in 2021 was around 5.6 million tons. As the production restrictions imposed due to winter weather conditions were less strict than in previous years, and Meifeng resumed its production activities, the total output increased by about 600,000 tons compared to 2020. Xinjiang’s demand is around 3 million tons, mainly concentrated from April to August. Therefore, given the situation of surplus supply and demand, and taking into account the demand season as well as the period when enterprises conduct maintenance, there are at least three to four months each year during which it is necessary to export goods from Xinjiang in order to alleviate the surplus within the region. The sharp rise in domestic urea prices in 2021 was also observed in Xinjiang. However, unlike the situation elsewhere, while domestic prices began to decline in late October, prices in Xinjiang continued to remain high; at certain points they were even higher than the ex-factory prices in Shandong Province. Although there were declines in November as well, the overall level remained on par with that of the external markets. Taking into account the shipping cost of 500 yuan per ton for shipments to Shandong and around 400 yuan per ton for shipments to the southwest, since the fourth quarter of 2021, due to price discrepancies, the amount of goods that could be sent out of Xinjiang has been significantly lower than in previous years. Moreover, manufacturers’ inventory levels have remained low, so most of the supply has accumulated in the domestic market within Xinjiang. http://img.yf116.cn/image/img/20220304/89172935730.jpg Figure 1: Comparison of the ex-plant prices of urea in Shandong and Xinjiang regions. According to data from Longzhong Information, the actual production volume in Xinjiang is expected to be 1.4 million tons in the first quarter of 2022, an increase of 40,000 tons compared to the same period in previous years. Taking into account the seasonal patterns in Xinjiang, as the season comes to an end, the output generated in the fourth quarter is mostly reserved for meeting future demands or for export outside the region, aside from what is needed by industry. Therefore, between the fourth quarter and the first quarter, the estimated total output for 2021–2022 is 2.7 million tons, compared to around 2.6 million tons during the same period, representing an increase in total supply of 100,000 tons. However, by comparing price trends inside and outside the region during this period, it can be seen that only a small amount of production was able to leave the region starting from January 2022, with the amount increasing gradually in the latter part of February. It is estimated that at least 60% of these 2.7 million tons of production remained within the region, a proportion that is nearly sufficient to meet half of the region’s annual demand; therefore, it is only a matter of time before the rest of the production leaves the region. http://img.yf116.cn/image/img/20220304/81002940039.jpg Figure 2: Quarterly actual urea production in Xinjiang. Since February, as the seasonal conditions within Xinjiang have evolved and the supply of urea there has increased, the transportation pressure has decreased, resulting in a noticeable rise in the amount of urea exported from the region. The price of urea exported also dropped, from around 2250–2300 yuan per ton in mid-February to 2200–2250 yuan per ton this week. Based on this price, the price at the southwestern distribution centers is approximately 2600 yuan per ton or more, while the current selling price there is around 2680–2700 yuan per ton. Compared to the prices of 2610–2640 yuan per ton recorded in Shanxi and Shaanxi on Thursday, this still represents a certain advantage. As a result, the market situation within Xinjiang remains relatively stable for now, and the prices for exports have not continued to fall. Looking ahead, thanks to the advance stockpiling in the Xinjiang market, production by local enterprises will remain high in the coming months. The expectation of a supply surplus means that a significant amount of goods will continue to flow out of Xinjiang. However, since this volume is only just starting to be released, its impact on external markets is still limited at present. In the medium to long term, as the volume increases and becomes more sustained, it will affect the market dynamics in regions such as Central China, Southwest China, and South China, thereby influencing market trends