Expanding into foreign markets: Another 15,000-ton batch of Ouiqianyuan urea exported abroad

Good, being able to open up export markets and find a place in a highly competitive environment.

In fact, urea has long been exported abroad; this is urea from Yulin, Shaanxi, going overseas for the first time. In 2013, vehicle urea solutions produced by Meifeng Jialan were sent to Australia, marking another significant advancement for the company after it began exporting vehicle urea pellets. 　　In recent years, Meifeng Jialan has made continuous efforts to expand into the \"blue ocean\" sector of vehicle urea, and has actively participated in the drafting of standards for vehicle urea solutions. On March 25, Meifeng began producing AdBlue for use in vehicles. On June 18, the company received the AdBlue certification from the German Association of the Automotive Industry; this gave its product international recognition, laying the foundation for entering international markets and achieving sustainable development from a strong starting point. In late August, the company received a production order from a foreign client. 　　In addition, Meifeng Jialan solid urea particles for use in vehicles were successfully exported to more than a dozen countries and regions including the United States, Japan, and Canada last year, and their excellent product quality has won praise from foreign clients and users. This year, the company’s solid urea particles for use in vehicles continued to enjoy strong sales performance. Since June 2000 to the present, China’s urea exports have gone through three phases, namely the initial period of urea exports from China from 2000 to 2001 ； Parallel imports of urea in China in 2002, and a surge in urea exports and a decline in urea imports in 2003. 　　Phase 1 (2000–2001): The beginning of China’s urea exports. June 2000 was a difficult and challenging month for many domestic urea manufacturers in China in terms of sales. Even as urea prices dropped from 1,300 yuan per ton to 1,000 yuan per ton, the market remained very sluggish. Apart from the enterprises under CNPC that used natural gas as raw material, and some enterprises in Shanxi, Henan, and Shandong that used coal as raw material (with coal prices at that time being only 1/4 of today’s levels), many Sinopec plants that relied on oil as a raw material were forced to shut down due to excessively high production costs. 　　In June 2000, domestic urea prices dropped to record lows, while international urea prices remained high due to rising oil prices. Thanks to the policy advantage of export VAT refunds, Chinese urea products were exported in bulk for the first time, going to Vietnam. Subsequently, urea exports continued, with the main exporting countries being Southeast Asia and South Asia**; by the end of the year, the total export volume reached 1.1 million tons. The favorable trend in China’s urea exports continued in 2001, with export destinations expanding to South Korea, Japan, Taiwan, and even the United States, and export volumes further rising to 1.3 million tons. In short, the large-scale export of urea from China **relieves the pressure on domestic urea manufacturers, ensures the financial stability of these production companies, and prevents a buildup of excess inventory of the product. Compared with domestic distributors at that time, urea exporters and their manufacturers adopted a payment-before-delivery settlement method, which enabled the manufacturing companies to avoid disputes arising from the delayed receipt of payments that are common in domestic sales ； At the same time, urea is mostly purchased in large quantities, so its export is strongly supported by capable urea manufacturers. 　　Phase 2 (2002): A period of parallel import and export of urea. After two years of urea exports, coupled with the shutdown or reduction in production by urea manufacturers facing high costs, the situation of an oversupply of urea in the country was fundamentally reversed. By early 2002, even during the off-season for fertilizer use, the price of urea in the domestic market had rebounded to 1,200 yuan per ton. Due to the high prices of urea in the domestic market and the temporary downturn in the international urea market at that time, export volumes for the entire year of 2002 dropped to around 400,000 tons, **below the levels of the previous two years. After China joined the WTO in 2002, as part of its commitments under that membership, it was required to import 1.2 million tons of urea that year; the relevant import quotas were mainly managed by Sinograin and Sinochem. Due to the low international urea prices at that time, the stability of the shipping market, and the favorable domestic urea situation, China imported a total of 790,000 tons of urea in 2002. Urea imports and exports have begun to operate side by side in the Chinese market. The main destinations for limited exports are industrial users in Japan, South Korea, and Taiwan. Even though China imported 1.5 million tons of ammonium sulfate products through automatic registration certificates throughout 2002, the domestic nitrogen fertilizer market continued to show steady growth; importers and domestic urea dealers enjoyed substantial profits with very little risk. 　　Phase 3 (2003): Surge in urea exports and decline in urea imports In the first half of 2003, as international urea prices rose, China’s urea exports improved significantly compared to 2002; exports remained stable throughout that period, with around 500,000 tons of urea exported by the end of June. During the same period, the domestic urea market maintained its positive trend from 2002, with prices reaching their highest level since 1999 ； Given that China banned the import of ** products in mid-2002, domestic urea promptly served as a substitute for those ** products. There was high demand for urea and a tight supply, and bulk exports of urea further drove up domestic prices. Starting in June 2003, the purchasing power in the United States began to increase, which significantly drove up prices of international urea, particularly large-grain urea. Compared to major urea supply regions such as the Middle East and the former Soviet Union, Chinese urea exports have the advantages of flexible supply volumes and shorter distances to Southeast Asia and East Asia. Additionally, due to the urea export ban imposed by Indonesia, a traditional urea supplier in Asia, in the second half of 2003, Chinese urea captured the majority of the market share for imported urea in Southeast Asia during that year ； At the same time, the South American market in the U.S. is also beginning to purchase large quantities of Chinese urea products, given the high international prices of urea. In October 2003, urea exports reached 600,000 tons, with annual exports amounting to around 2.7 million tons. In contrast, annual urea imports were only 160,000 tons. Starting in August 2003, due to strong export demand and high prices, Chinese urea exporters and domestic distributors began competing for supply within the country. By the end of 2003, the domestic price of urea reached 1,500 yuan per ton, which is equivalent to the export price of 170 US dollars per ton. 　　Outlook for urea imports and exports this year and in the future In the first quarter of this year, the pace of urea exports slowed down. It is estimated that by mid-April, China’s urea exports will reach around 500,000 tons. Adding to this the 2.7 million tons exported last year, as well as the fact that insufficient domestic coal supply has forced some factories to shut down or reduce production since last year, China’s urea market has seen a total reduction of over 3.5 million tons in output from the beginning of last year to the present – a figure equivalent to the total output of all PetroChina’s manufacturing plants last year. Imagine that if, in the first half of 2004, there was a complete shortage of urea supply due to CNPC’s reduced production, and domestic port stocks and inventory levels were tight, then urea prices would not drop significantly by the end of June 2004. At present, in order to reduce the burden on farmers, lower domestic fertilizer prices, boost agricultural production, and increase food supplies, China has adopted a series of measures such as setting limits on the maximum ex-factory price of urea, regulating the prices at which fertilizers are sold, and providing financial subsidies to help Sinopec’s manufacturers resume urea production and supply. What is even more worth noting for urea distributors and dealers is that as of March 16, 2004, **in order to ensure an adequate supply of urea during the spring planting season, curb excessively high sales prices and thus benefit farmers, it was decided to suspend the export tax rebate on urea for one year. This means that the FOB price of urea exported from China will increase by $15–17 per ton. For urea export contracts that were signed before March 16, 2004 but not yet fully executed, the urea exporters need to gather the relevant documents by March 25, 2004, and submit them to the competent tax authorities for record-keeping ； After registration, it is still possible to execute the relevant contracts while enjoying an 11% export tax rebate on urea. Affected by this news, companies that rely relatively heavily on urea exports began to lower their factory prices in order to prevent an oversupply of urea domestically and a drop in prices as a result of restricted exports. 　　The adjustment of the export tax rebate policy for urea will surely suppress urea exports and increase domestic supply ； At the same time, the increased supply of urea from Sinopec will also help to curb further rises in domestic urea prices to a certain extent. However, the 3.5 million tons of urea exported from the beginning of last year to the present will ensure that retail prices of urea do not drop significantly during the fertilizer usage season this year. On the other hand, will the adjustment of the export tax rebate policy for urea significantly restrict China’s urea exports in 2004? Will China’s traditional market share in urea exports be lost as a result? My personal view on this is negative. Because, after the peak season for fertilizer use in China, starting from July 2004, due to restricted exports and increased supply from Sinopec, an oversupply of urea in the domestic market will soon become apparent, causing domestic prices to fall in search of support. At the same time, after June 2004, purchasing power in Southeast Asia, the United States, and South America in the international market will start to increase again, keeping international urea prices high. Meanwhile, due to the high freight costs associated with Panama-type and flexible-type ships, urea exports from the former Soviet Union will not have a significant price advantage; Chinese urea products will regain their competitiveness even in the absence of tax rebates. However, urea exports in 2004 are expected to be lower than in 2003, likely ranging between 1.5 million tons and 2 million tons. 　　Looking ahead to the urea import and export situation in China in 2005 and the subsequent years: As domestic urea producers continue to expand their production capacity and competition in the domestic urea market intensifies, China’s imports of urea will decline year by year. Actual urea imports will only be possible if international shipping costs fall and there is a large price difference between urea prices domestically and internationally. Given the current trend in shipping costs, it is unlikely that they will drop before mid-2005. 　　Regarding urea exports, as Indonesia’s ban on urea exports will be gradually lifted, export volumes will start to recover, and new export figures are expected by the end of April 2004. Furthermore, as Vietnam, the largest urea importer in Southeast Asia, began to produce urea (a plant with an annual production capacity of 500,000 tons was put into operation in mid-2005; another plant with the same capacity was launched in 2007), its imports of urea will be significantly reduced. It is estimated that imports next year will drop by 700,000–800,000 tons, while in 2007 they will fall to 300,000–400,000 tons. As a result, China’s urea exports will shift from their current main market, Southeast Asia, to various other regions, including Japan, North Korea, South Korea, Taiwan, North America, and South America. 　　As for the **policies related to urea exports, I believe that changes in these policies can lead to market imbalances to a certain extent, and it will take more time for the market to re-establish balance. Urea exporters will also need to make greater efforts to adapt to the changed market conditions. As a urea exporter in China, the reality is that in one year’s time it will be necessary to abandon the current policy of no export tax rebates for urea exports, to which one has just gotten used, and revert to a system where such rebates are available; moreover, there is no certainty as to whether there will be any changes in the export tax rebate policies for urea next year. So, in my personal opinion, it is worth considering whether China’s export tax rebate policy for urea should be maintained, as the market will ultimately accept the reality of no tax rebates on exports.