Urea prices are stabilizing; liquid ammonia is also facing tough times

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Urea prices stabilize; liquid ammonia is also facing tough times. Author/Source: China Fertilizer Network Date: 2016-10-27 Clicks: 9 This upward trend in urea prices has, to some extent, helped to offset the losses incurred by manufacturers and distributors； The reasons for this are primarily the low operating rates of urea manufacturers, as well as the sharp rise in the price of coal, the raw material used in production. These factors increase the costs for manufacturers, who therefore raise prices. In some markets, such as the Shandong region, prices have increased by 70–100 yuan per ton since the beginning of the month. However, while urea prices are rising, and given that the market is already in a period of low demand, the risk of price declines also looms on the horizon ； Since the weekend, although a few manufacturers in certain areas have raised their prices slightly at the low end, given the weak demand in both industry and agriculture, we cannot ignore the possibility of a price decline. 　　Looking at the market for liquid ammonia, prices have seen fluctuations. Methanol and urea are performing well, and some manufacturers have shifted their production focus to these products; as a result, the volume of liquid ammonia supplied has decreased to some extent, and its prices have risen slightly ； The prices of methanol and urea have shown a slight decline, while shipments of liquid ammonia have increased, leading to a shift in the overall market trend. Apart from regions such as Anhui and Henan, which are major producers of liquid ammonia and where production levels are currently low, demand is high in other areas. However, downstream industries that use ammonia do not have strong demand and purchase only as needed, resulting in an oversupply in the liquid ammonia market. Liquid ammonia manufacturers face pressure in selling their products, with inventory levels likely to rise at any time; prices in some areas have already dropped. Currently, the prevailing spot price for liquid ammonia in China is around 1700–2350 yuan per ton, with a negotiation margin of at least 50 yuan per ton. 　　Given the close relationship between urea and liquid ammonia, as urea prices remain stable, why is it difficult for liquid ammonia as well? 　　Simply put, once the urea market stabilizes, most manufacturers first consider shifting their production focus to liquid ammonia, which offers better prospects. The suspension of inspections in some local urea-producing enterprises has resulted in a significantly low operational rate for this industry; according to statistics from China Fertilizer Network, this rate is around 50%, which is sufficient to achieve a balance between production and sales, with virtually no inventory pressure on these enterprises ； Coupled with currency depreciation and rising international urea prices, these factors have contributed to an improvement in the outlook for China’s urea exports, thereby helping to maintain stable domestic prices to a certain extent. However, it is currently the off-season for agricultural needs, so there are not many additional orders in the agricultural sector. Meanwhile, the urea manufacturers that were under maintenance are set to resume production (such as a few urea manufacturers in Inner Mongolia and Xinjiang), in an attempt to take advantage of this upward trend and offset some of the losses incurred before the maintenance period ； Additionally, the operating rate of industrial compound fertilizer plants is very low; according to rough estimates from China Fertilizer Network, it is around 33%. With the winter storage policies still not clear, compound fertilizer manufacturers are opting to suspend operations and wait for further developments. They purchase urea, the raw material used in production, only as needed, and such limited orders are not sufficient to sustain the overall market situation. Overall, if the price of urea rises too sharply, it is likely to prompt manufacturers that have suspended production or intend to withdraw from the industry to resume operations. Excess capacity will remain the main challenge for market development in the future, and there is a high likelihood of a moderate decline in prices; as a result, manufacturers may increase their shipments of liquid ammonia depending on the situation, which would lead to an oversupply in the liquid ammonia market. 　　In addition, rising coal prices are increasing the costs for liquid ammonia producers. Some manufacturers prefer to operate at full capacity in order to reduce their costs; as a result, the operating rates of these companies are gradually increasing. For example, some liquid ammonia producers in Hebei Province have increased their output, which led to a drop in prices by 30–50 yuan per ton. In the northern Shandong region, one factory saw a significant increase in its liquid ammonia shipments, resulting in a price drop of 30–60 yuan per ton ； Some liquid ammonia production facilities in Central and Eastern China that were under maintenance have begun to resume operations, and they will start producing products in the near future. This will lead to an increase in the supply of liquid ammonia on the market. Additionally, if demand shifts from urea to liquid ammonia as prices for urea decline, all these factors could contribute to an even greater oversupply in the liquid ammonia market, increasing the likelihood of price drops. Overall, the trend in urea prices has a significant impact on the performance of the liquid ammonia market; therefore, if urea prices stabilize or decline in the future, the situation for liquid ammonia will not be favorable either. (Tan Junying)