Daily urea production is set to return to high levels; further releases from reserves are expected in the future

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Daily urea production is expected to return to high levels; there will be further significant measures regarding reserve releases. Author/Source: Futures Daily. Date: March 16, 2022. Click-through rate: 12. When granaries are well-stocked, the realm enjoys peace. 　　On the evening of March 14, the National Development and Reform Commission announced that starting from March this year, over 3 million tons of spring plowing fertilizers from the first batch in 2022 have begun to be released onto the market. As spring plowing progresses from south to north, a large amount of additional fertilizer reserves will be released into the market to meet the fertilizer needs for agricultural production during key periods such as spring plowing. Next, the **National Development and Reform Commission will closely monitor the situation in the fertilizer market, and work together with relevant parties to continue efforts to ensure an adequate supply of fertilizers and stabilize prices. 　　The supply of fertilizers for spring plowing is crucial for meeting farmers’ needs for fertilizers in grain cultivation and achieving the annual grain production targets. **The National Development and Reform Commission and the Ministry of Finance, in conjunction with relevant parties, arrange for a certain volume of commercial fertilizer reserves each year, which are released in a timely manner to meet the market’s demand for fertilizers. 　　The respondents generally agreed that the distribution of this first batch of fertilizers for spring plowing can help alleviate the current shortage of supplies in the market. It is important for curbing excessive price increases and ensuring an adequate supply of fertilizers as well as food security. The steady operation of the newly added production capacity and the gradual introduction of reserve fertilizers will further ensure market supply. 　　Reporters from Futures Daily learned that both the commercial reserves of conventional fertilizers (commonly known as off-peak reserves) and the additional reserves of summer-use fertilizers added in 2021 fall under the category of commercial off-peak fertilizer reserves. 　　The target for storing fertilizers for the spring planting season in 2020–2021 was 8.05 million tons in total, of which urea reserves were required to account for no less than 40% (3.32 million tons). The winning companies had to choose any six consecutive months between September 1, 2020, and April 30, 2021, during which they would be responsible for storing these fertilizers. 　　“Given that the price of domestic urea was high in the fourth quarter of 2021 due to factors such as raw material costs and external inflation, during the actual storage period from 2021 to 2022, and affected by reduced production at facilities in the southwest and the COVID-19 pandemic, the amount of fertilizer supplied to various provinces by the entities responsible for storage was limited and spread out over different regions. ”Tang Feifei, an analyst at Zhuochuang Information, said. 　　On December 23, 2021, the **National Development and Reform Commission announced the tender plan for the temporary storage project of summer management fertilizers for 2022. Based on the number of bids for each region as stated in the announcement, the temporary reserve volume of summer management fertilizer this time will exceed 2.65 million tons, with the procurement period for the storage entities falling between January and February. **To meet the essential needs of agriculture, temporary increases have been made to the reserves of summer management fertilizers. 　　“From a macro perspective, the distribution of fertilizer reserves for spring plowing is a follow-up measure to a series of actions taken since the fourth quarter of last year – actions such as the National Development and Reform Commission’s decision not to classify the fertilizer industry as a high-energy-consuming sector, the revision of the inspection methods for fertilizer exports, and efforts to ensure a stable supply of coal and natural gas for this industry. ”said Zhang Linglu, an analyst at Everbright Futures. 　　Looking at the domestic urea market, production of urea entered a seasonal downward trend starting in mid-November last year. Due to the priority given to ensuring heating for residents during the winter heating season, the operation rate of these enterprises dropped to 36.25% by the end of last year. 　　“Starting from mid-February this year, domestic gas-fed enterprises reduced their output, temporarily leading to a decrease in supply. With the arrival of spring plowing, domestic urea inventory has continued to decline recently, and supply is tight in some areas. ”Yan Sensheng, an analyst at Guantong Futures, said that the recurring outbreaks of the pandemic also pose challenges to the transportation of urea. Traffic restrictions in certain areas of Shandong, Henan, and Hebei make it difficult for urea factories to ship their products. Currently, factory inventory is on the rise, while deliveries from Linyi in Shandong and Hunan and Hubei have decreased. 　　“Currently, the international geopolitical situation is volatile, and the peak season for agricultural fertilizer use in the country is approaching; this concentrated increase in demand may exacerbate the supply-demand imbalance for fertilizers domestically to some extent. ”Zhang Linglu said that, given the shortage of the three key raw materials—nitrogen, phosphorus, and potassium—the compound fertilizer industry should have increased production during the peak season of spring plowing, yet its operation rate actually declined instead of rising. 　　In her view, applying reserve fertilizer at this time can largely alleviate the current shortage of chemical fertilizers, stabilize rising prices for such fertilizers, and maintain farmers’ enthusiasm for cultivation. 　　“The more than 3 million tons of fertilizer reserves for spring plowing that have been released this time consist mainly of urea, phosphate fertilizers, and compound fertilizers; these can help alleviate the current supply shortage in the fertilizer market to some extent and play a role in stabilizing fertilizer prices. ”Tang Feifei told a reporter from the Futures Daily that the main role of releasing commercial reserves of fertilizers is to provide a psychological indication that the supply available in the market is sufficient to meet the needs for fertilizers during spring plowing. 　　According to Yan Sensheng, the enterprises that underwent maintenance in the earlier phase began to resume operations last week; however, manufacturers in Inner Mongolia started their maintenance work this week, and at present the daily urea production is less than 160,000 tons. “Next week, once the manufacturers in Inner Mongolia resume production and Wulandahua resumes stable urea output, domestic urea production will increase significantly, allowing for more fertilizer to be available for spring plowing. ” 　　The reporter learned that the current period represents the peak season for fertilizer use in China’s agricultural sector throughout the year. As temperatures continue to rise, spring plowing across China is progressing from south to north, and procurement activities in the fertilizer market have also picked up. 　　“Currently, agricultural demand is mainly driven by purchases of fertilizers for inventory purposes along the mid- and downstream segments; the absolute price level is the primary factor influencing the pace of such inventory buildup. ”Zhang Linglu said that as the spring plowing season approaches, the absolute level of urea consumption in agriculture will gradually increase. 　　According to industry insiders, more than 3 million tons of state-owned fertilizer reserves have been released this time, an amount that represents around 70% of China’s monthly urea production. Although this is not enough to cover the country’s monthly nitrogen fertilizer output, it can help alleviate regional supply-demand imbalances caused by disruptions in logistics in key production areas such as Shandong and major consumption areas such as the Northeast. It can also help reduce the overall decline in nitrogen fertilizer supply resulting from the export of products like synthetic ammonia and ammonium chloride. 　　In terms of timing, the current time of distribution coincides with the period when temperatures rise and spring plowing begins. Taking into account factors such as coordinating logistics and delivery to local areas, this timing allows for timely supply of fertilizers for the first round of spring plowing, thus avoiding the situation where local areas are ready to apply fertilizer but have none available. 　　“The current urea market is influenced by numerous factors; macroeconomic conditions, policies, costs, geopolitics, and market sentiment all play a crucial role in shaping the situation of this market. Moving forward, with the continuous release of state-reserved fertilizers, the market needs to closely monitor changes in the supply-demand dynamics both domestically and internationally, as well as shifts in policy directions and market sentiment. ”That’s what Zhang Linglu said.