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Urea: Coal, slow down! I can’t keep up! Losses Persist Despite a 100-Yuan Price Increase; Pressure on Companies to Transform Increases Author/Source: China Agri-Media Date: 2016-10-27 Clicks: 27 Recently, the urea market has seen prices rise by 50–100 yuan per ton, driven by the sharp increase in coal prices, slow recovery in production levels, and weak demand. The sluggish market conditions have contributed to the continuation of these price increases, with manufacturers raising prices accordingly. However, as the autumn planting season comes to an end, downstream distributors remain cautious and wait-and-see about the future market situation. Rising raw material costs and persistent weak demand: Due to the sharp increase in coal prices during this period, the price of urea at factories rose from 1,100 yuan per ton to 1,250 yuan per ton, an increase of about 100 yuan per ton after the National Day holiday. This price rise helped to offset some of the losses incurred by manufacturers and distributors, but it still wasn’t enough to keep up with the pace of rising coal prices. ”Zhuang Yanwu, vice general manager of Shanxi Tianze Coal Chemical Group Co., Ltd., said so. Zhuang Yanwu analyzed for reporters the main reasons behind the rise in prices at urea factories this time: it is primarily due to low operating rates of urea manufacturers, a sharp increase in the price of coal, which is a key raw material, leading to higher costs for producers and thus an increase in the ex-factory prices. He also emphasized that currently, the domestic industry and agriculture are in a off-season for fertilizer use, with no positive factors affecting demand. Meanwhile, the coal market is in a peak season due to heating needs and winter stockpiling, and prices are rising very rapidly; this undoubtedly adds further strain to an already sluggish urea market. The rise in coal prices has imposed a cost increase of nearly 20–30 yuan per ton on the urea market. Even though the price of urea at the factory level has risen by almost 100 yuan per ton, compared to the rate of increase in coal prices, urea manufacturers will still operate at a loss; in fact, the more they produce, the greater their losses will be. Shanxi Tianze has reduced its production volume from 5,000 tons per day to 3,000 tons, ceasing to operate at full capacity. It is understood that at present, some urea manufacturers in regions such as Shandong, Hebei, Shanxi, and Jiangsu have raised their prices again; the mainstream ex-factory prices in Shandong have increased by 10–20 yuan per ton, reaching 1260–1280 yuan per ton ； The mainstream ex-factory prices in Shanxi region have risen by 50–70 yuan per ton, reaching 1,220–1,250 yuan per ton ； The mainstream ex-factory prices in Hebei region have increased by 10–20 yuan per ton, reaching 1260–1290 yuan per ton ； In the Jiangsu region, the mainstream ex-factory prices have increased by 10 yuan per ton, reaching 1320–1360 yuan per ton. However, as it is a slow season for demand in China, urea prices remain relatively stable in most areas. Although demand is the primary factor determining urea market prices and cost is the secondary one, in an industry like urea that has been experiencing losses for a long time, it was expected that rising raw material prices would drive further increases in urea prices. Given the currently low operating rates, a price of 1,250 yuan per ton still results in losses for most urea manufacturers. If the price can rise to 1,300 yuan per ton, some of these companies will be able to resume operations. As the supply of urea increases and demand from industry and agriculture weakens, prices are likely to decline slightly in the medium to long term; the relationship between supply and demand in the market remains the key factor. Rising logistics costs further strain businesses. Following the official implementation in September of the regulations regarding the use of roads by vehicles with excessive dimensions, in mid-October, agencies such as the Taiyuan Bureau, Xi’an Bureau, Urumqi Bureau, and Zhengzhou Bureau issued relevant documents that revoked the preferential policies previously in place for rail transportation… The increase in logistics costs undoubtedly adds to the difficulties already faced by urea manufacturers, which are operating at a loss. “Not only have raw material costs risen, but the ‘limits on cargo volume’ regulations have also increased transportation costs by nearly 20%-30%. On top of that, even the preferential policies for rail transportation have been abolished. Although logistics costs are primarily related to the distribution process, in the current economic downturn, manufacturing companies also have to bear these logistics costs. It’s truly a situation where misfortunes keep coming one after another! ” Zhuang Yanwu sighed with emotion. Not only have the procurement costs for factories increased, but the logistics and shipping costs associated with urea have also risen. As a result of these factors combined, the price of urea when it arrives also increases immediately. As distributors bear the direct impact of rising shipping costs on their profits, they will inevitably adopt protective measures under the current policy while waiting for urea prices to rise, namely purchasing at lower prices. Companies are urgently seeking ways to transform. Lin Changqing, general manager of the nitrogen fertilizer department at Guangdong Tianhe Agrochemicals Co., Ltd., told reporters that currently, the urea industry is facing a range of challenges such as rising natural gas prices, the abolition of preferential electricity policies for fertilizers, increasing industry costs, and falling urea prices. The rise in logistics costs also has a significant impact on companies involved in distribution. For now, companies continue to purchase goods based on their needs, while keeping a close eye on market developments. For distribution companies, the simple buy-and-sell model in the agricultural supplies industry is now a thing of the past; they must have the ability to manage market risks, and at the same time face significant pressure to transform. Lin Changqing emphasized that today, Guangdong Tianhe is no longer a traditional agricultural input distribution company; rather, its core strength lies in establishing an agricultural service and delivery network that operates directly with end-users. The company strives to become a large-scale comprehensive agricultural service provider that relies on modern agricultural technology services as a foundation and a robust delivery system as a support, offering farmers comprehensive agricultural services such as soil testing and fertilization advice, as well as scientifically tailored crop solutions, thus pursuing a path of transformation and upgrading that returns to the essence of agriculture. (Li Yang)