Summary Post on the Urea Market Conditions and Prices in November 2016

Summary of urea price trend analysis and its relationship with the coal-based methanol industry

Urea “transforms” into coal Author/Source: China Agri-Materials News Network Date: 10-31-2016 Clicks: 28 The price of urea increased by 100–150 yuan per ton in October; such a rise has never been seen before in history and exceeded the author’s expectations. So why did urea exhibit such abnormal behavior? 　　It’s not that the demand is particularly strong: agricultural demand comes to an end in October, and the use of compound fertilizers in industry also enters a period of shutdown for maintenance. In normal years, urea prices drop at this time, creating room for price increases during the off-season storage period. Therefore, this round of price increases has nothing to do with rigid demand. 　　It’s not the strong export volume: Although international urea prices have risen significantly compared to September, the situation remains one in which port prices are higher than international prices, and factory prices are higher than port prices, indicating that exports are not the reason behind the sharp rise in urea prices. 　　It’s not so much the low production volume: in terms of capacity utilization, although it has dropped significantly compared to peak levels, **according to data from the statistics bureau, domestic production remains above 5.6 million tons per month. Significant exports are still needed to maintain balance at home (and this is likely to be difficult to achieve next year). 　　Thus, it is evident that this recent rise in urea prices has nothing to do with supply and demand dynamics. The only explanation is that the increase in coal prices has driven up urea production costs. Holding onto urea is equivalent to holding onto coal, which prompts merchants to hoard the product! The rise in coal prices is the fundamental cause of the current increase in urea prices. For this reason, the author will focus on discussing views regarding the trend of coal prices. 　　As is well known, the current rise in coal prices is caused by **capacity reduction**; from January to September, domestic coal production declined by 10.5% compared to the same period last year, while coal consumption in key sectors such as thermal power generation, steel production, and cement manufacturing increased compared to the previous year (by 2.8%, 0.37%, and 2.6% respectively). A sharp decline in supply and a slight increase in demand finally altered the supply-demand balance, leading to a surge in coal prices in October. This in turn drove up the costs of coal-based chemical products; many of these products saw price increases of over 50% in the short term. Methanol, which is related to urea, also experienced a price increase of 20% in October. Urea, however, saw the smallest price rise due to the weak demand during that period. Therefore, the increase in urea prices this time is merely a reflection of the rise in coal prices, and it cannot be considered as speculation. 　　Since the rise in urea prices is caused by coal, and the increase in coal prices is a result of macroeconomic regulation, has the fact that the National Development and Reform Commission has held four meetings since September to release additional production capacity and increase supply led to a drop in coal prices? The author argues that the current measures taken by the National Development and Reform Commission to increase supply are ineffective: First, the optimal timing was missed; in September, the commission already realized that there might be a shortage of coal supply, and therefore introduced a three-tier response plan to release additional production capacity. However, it did not change the policy of strictly limiting production to 276 days per year. In other words, once those 276 days are used up, there will be periods of suspension of production. Which company would arrange its production in such a way? Enterprise production emphasizes stability and continuity; it is not possible to increase production rapidly just because prices rise, nor to reduce production quickly when prices fall. The emergency response methods effective for public affairs do not apply to enterprise production. As a result, despite holding many meetings, it is unlikely that enterprises will increase production, thereby missing the best opportunity to stabilize coal prices. 　　Second, the measures for increasing and reducing production are asymmetric: reducing supply is a quantifiable target that is implemented very effectively. Increased production relies on the willingness of enterprises; there is a naive assumption that companies are highly eager for profits and will increase production as long as restrictions are lifted. What is not understood is that for enterprises, rising prices, stable sales volumes, or increasing sales volumes along with falling prices have no impact on their profits, and they thus have no incentive to increase production. As a result, coal production did not increase in September – in fact, it declined. 　　III. Peak demand is approaching: We have entered the peak winter coal consumption period. With inventories at low levels and supply increasing slowly, the coal shortage will only widen. 　　The author once predicted that 5,500-kcal thermal coal prices might exceed 800 yuan per ton. The person who created the problem must be the one to solve it; it is believed that **feasible measures to increase coal production will be introduced when necessary, and it is also believed that **there is the capacity to regulate coal prices. However, in the short term, coal prices will continue to rise along with urea prices. (Yu Lei)

Urea market remains on a stable trend Author/Source: Date: 2016-10-31 Clicks: 24 Market Updates This week (2016.10.21-2016.10.26), urea prices in some parts of the domestic market continued to rise by 20-50 yuan per ton. “After the National Day holiday, the ex-factory prices of urea in China’s main production areas and surrounding regions increased by 80–100 yuan per ton. The main reason for this rise was that urea manufacturers decided to raise prices due to the increasing costs associated with coal prices and shipping fees. However, as it is currently the off-season for fertilizer use, downstream distributors are adopting a cautious and wait-and-see attitude toward future market trends. The production cost of urea remains high, and the operating rates stay low. Some urea manufacturers have a good level of pending orders, while in many regions there is a shortage of transportation capacity for urea, which results in lower volumes of urea being shipped to the market. Some urea manufacturers in Shandong, Hebei, Shanxi, Jiangsu and other areas have raised their prices again, while prices for urea in other regions remain relatively stable. The mainstream ex-factory prices in Shandong region have risen by 10–20 yuan per ton, reaching 1260–1280 yuan per ton; actual transaction prices are slightly lower ； The mainstream ex-factory prices in Hebei region have risen by 10–20 yuan per ton, reaching 1260–1290 yuan per ton ； In the Henan region, the prevailing ex-factory prices have risen and now remain stable at 1,280–1,300 yuan per ton ； In the Shanxi region, the prevailing ex-factory prices have risen by 50-70 yuan/ton to 1,220-1,250 yuan/ton. Affected by the relatively high inventory levels in Inner Mongolia, outbound shipments remain sluggish. 　　Future outlook: Overall, this week the urea market has been influenced by the continuous rise in coal prices; as a result, some factories in certain areas raised their prices, but the overall price trend remained stable. It is expected that there will continue to be gradual price increases in the domestic urea market. Under cost pressures, manufacturers remain determined to maintain current prices. Additionally, with a slow recovery in operating rates, most manufacturers still have a decent number of pending orders. However, since it is currently the off-season for demand, new order transactions remain rather sluggish. Most players are adopting a wait-and-see attitude toward price hikes; they prefer to wait and see how things develop while adjusting their prices in line with market trends. (China National Agricultural Means of Production)

Rising Costs: Urea Manufacturers Reduce Production Capacity Author/Source: China Agri-Materials Date: 2016-10-31 Clicks: 27 Recently, due to the sharp rise in coal prices, slow recovery in production levels, and weak demand, urea prices rose by 50–100 yuan per ton after the National Day holiday. Manufacturers have begun to raise prices accordingly; however, with the end of fertilizer demand in the autumn market, downstream distributors remain cautious and wait-and-see regarding future market trends. 　　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. ” This is what Zhuang Yanwu, deputy general manager of Shanxi Tianze Coal Chemical Group Co., Ltd., said. 　　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, the key raw material, which raises production costs and thus leads to higher export prices. He also emphasized that currently, China’s agricultural and industrial sectors are in a off-season for fertilizer use, with no positive factors driving demand. However, the coal market is currently in its peak season due to the onset of heating needs and winter stockpiling; prices are rising at a very rapid pace. This undoubtedly makes matters worse for the 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 risen by 10–20 yuan per ton, reaching 1260–1290 yuan per ton ； In the Jiangsu region, the lower end of the prevailing ex-factory prices rose by 10 yuan per ton to 1,320–1,360 yuan per ton. However, given that it is currently the off-season for demand in China, urea prices remained largely 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 costs would lead to a continuous increase in urea prices. With the current 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 governing the use of roadways 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 further pressure on urea manufacturers, which are already 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%. Moreover, even the preferential policies for rail transportation have been abolished. Although logistics costs are primarily associated with the distribution process, in the current economic downturn, manufacturing companies also have to bear these logistics costs. It’s truly a time of continuous setbacks! ” 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. Given that distributors directly bear the erosion of profits caused by shipping costs, during the period of waiting for urea prices to rise, they will inevitably take protective measures under the current policies—namely, purchasing at lower prices. 　　Returning to fundamentals and undergoing transformation and upgrading. Lin Changqing, General Manager of the Nitrogen Fertilizer Division at Guangdong Tianhe Agricultural Supplies Co., Ltd., told reporters that currently, the urea industry is being affected by a series of factors, including rising natural gas prices, the abolition of preferential electricity pricing policies for fertilizers, increasing industry costs, and declining urea prices. The rise in logistics costs also has a significant impact on distribution companies. At present, enterprises continue to make purchases based on demand while closely monitoring future market trends. For distribution companies, the simple buy-and-sell model in the agricultural supplies sector 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 inputs distribution company; instead, its core strength lies in establishing an agricultural services 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, as well as scientifically tailored crop solutions. In this way, it is pursuing a path of transformation and upgrading that returns to the essence of agriculture and its fundamental nature. (Li Yang)

Urea prices continue to rise while production rates remain low. Author/Source: China Chemical Fertilizer Network. Date: 11-02-2016. Clicks: 2. The production costs of urea remain high, and production rates stay low. It is reported that there is limited stock of urea in many regions, and transportation by road is hindered; in some areas, transportation costs have also increased. This has created a slight shortage in the urea market. Since the weekend, urea manufacturers in regions such as Shandong, Jiangsu, Anhui, Hubei, Sichuan, and Chongqing have raised their prices again. In the Shandong region, most urea manufacturers have a good level of pending orders, and there has been an increase in inquiries from downstream clients. The prevailing ex-plant prices have risen by 20–40 yuan per ton, reaching around 1350 yuan. In the Hebei region, the two major manufacturers are supplying to ports as well as the southern markets; they also have a good number of orders already in place. Their prevailing ex-plant prices have increased by 30–40 yuan, reaching 1350–1370 yuan, though actual transaction prices are slightly lower ； The mainstream ex-factory prices in Henan region have risen by 30–40 yuan, reaching 1350–1370 yuan ； Continuous rainy weather in Anhui has led to slow shipping, but driven by rising prices in other regions and the level of production activity..., the mainstream factory prices have increased by 10-40 yuan, reaching 1350-1390 yuan ； Some manufacturers in Jiangsu operate at reduced capacity, yet their sales performance is good; the mainstream factory prices have increased by 20–50 yuan, reaching 1400–1450 yuan, while prices for high-end products are 20–30 yuan lower ； Due to transportation difficulties, few low-priced goods from other regions have arrived in Sichuan. The local standard factory prices have increased by another 40 yuan, reaching 1380–1440 yuan; a few prices are even higher ； The production rate in the Chongqing area... Additionally, due to rising prices in the Sichuan area, the standard factory prices have increased by 90 yuan, reaching 1390–1420 yuan, which limits new orders ； Sales in the Ningxia region have also shown improvement; the mainstream factory prices have risen by 10 yuan to around 1,140 yuan, while the actual transaction prices are slightly lower. Regarding large-particle urea, the available supply in the market is limited. In Shandong Province, the prevailing ex-factory price has risen by 30–50 yuan to around 1,420 yuan ； In the Henan region, the prevailing ex-factory prices have risen by 30 yuan, now standing at around 1,350 yuan ； In Jiangsu region, the mainstream ex-factory prices have risen by 40-50 yuan to 1,430-1,450 yuan ； The mainstream ex-factory prices in Inner Mongolia have risen by 50 yuan, to 1250–1300 yuan. Overall, there is significant pressure on urea costs, the overall production level remains low, and recent transportation difficulties have resulted in limited inventory levels among downstream users. As a result, the supply of urea in the market remains somewhat tight. It is expected that urea prices will continue to rise in some areas. Meanwhile, demand from both industrial and agricultural sectors in China remains weak, and new orders are modest; therefore, price increases should occur in fewer areas. Going forward, it will be necessary to continue monitoring developments related to transportation as well as the inventory levels of downstream users. (Che Yanhong)

Urea price trends across China Author/Source: China Fertilizer Network Date: 11-02-2016 Clicks: 8 The production cost of urea remains high, the operating rate stays low, and transportation is hindered; as a result, there is not much urea available in the downstream market. The supply of urea is somewhat tight, and prices for urea in regions such as the Two Rivers area, Shanxi, Hubei, and Shaanxi have risen again. In the Shandong region, the prevailing ex-factory prices have remained stable at around 1,350 yuan per ton; those of a few manufacturers whose prices were higher than this level have been reduced by 10 yuan. The purchase price in Linyi is… (Some details are available in the member area; same applies here.) ； Some manufacturers in the Two Rivers region have a good level of pending orders, which has led to another round of price increases. In Hebei, the mainstream ex-factory prices have risen by 30 yuan, reaching 1350–1400 yuan; in Henan, these prices have increased by 10–30 yuan, settling around 1380 yuan (……). Transactions in both regions can be slightly lower ； Most manufacturers in the Shanxi region have a large number of orders pending shipment, and the mainstream factory prices have increased by 50 yuan, ranging from 1250 to 1350 yuan ； The production rate in Hubei region... and driven by rising prices in other regions, the mainstream ex-factory prices have risen to around 1380 ； The order situation in the Shaanxi region is also good; the standard factory price has increased by 40 yuan to around 1,340 yuan, for delivery outside the region…… ； Manufacturers in the Liaoning region are operating at reduced capacity, while the two urea plants in Jilin have continued to shut down. Sales conditions in Liaoning have improved, with the mainstream ex-factory prices rising by 110 yuan to 1310–1350 yuan. Internationally, Indonesia is holding tenders for large and small particle urea... Overall, there is significant pressure on urea costs, and the overall production rate remains low. Positive factors on the international front continue to increase, and recently, difficulties in domestic transportation along with insufficient inventory at downstream levels have resulted in a slight shortage of urea supplies in the market. It is expected that urea prices will continue to rise in some areas, with substantial increases in prices across various regions of the country. Downstream users are generally reluctant to accept higher prices, so stability should be the priority in most areas. Going forward, it will be necessary to keep an eye on developments related to transportation as well as the actual number of export orders placed. Regional market prices: Unit: yuan/ton (bold in the table refers to large-grain urea)

Rising costs in the urea market drive up prices Author/Source: Date: 2016-11-02 Clicks: 9 CNPI-161031.png CNRI-161031.png Last week (October 24–October 28), domestic urea supply decreased, and prices continued to rise supported by rising coal prices. On October 31, China’s urea wholesale price index (CNPI) was 1367.32 points, up 37.19 points on a month-on-month basis, representing a growth rate of 2.80% ； Compared to the same period last year, it decreased by 231.77 points, a drop of 14.49% ； It dropped by 495.93 points from the base period, representing a decline of 26.62%. China’s urea retail price index (CNRI) stood at 1,455.44 points, up 19.71 points on a month-on-month basis, representing a growth rate of 1.37% ； A decrease of 246.13 points on a year-on-year basis, representing a decline of 14.47% ； It dropped by 449.52 points from the base period, representing a decline of 23.60%. 　　Supply situation: Recently, more and more urea producers have suspended operations for maintenance, leading to a continuous decline in operating rates. Last week, the overall operating rate of domestic urea production fell to around 53%, while that of gas-fed plants remained at roughly 30% ； The anthracite market remains generally stable, with prices in some major producing areas for lump coal rising by 50 yuan per ton ； As companies in the ammonia synthesis sector resume operations, supply is ample and prices have dropped slightly. 　　Demand situation: There is currently no overall demand for urea in the domestic agriculture sector ； In the industrial sector, winter stockpiling is progressing slowly; the operating rates of compound fertilizer manufacturers continue to decline. Affected by the losses incurred during last year’s winter stockpiling efforts and the fact that the meeting related to phosphate-based compound fertilizers has not yet taken place, distributors are adopting a cautious approach, ordering goods carefully and reducing their demand for urea ； The export market showed slight activity, with some domestic goods being consolidated at ports. 　　International market: In terms of the international market, at the FMB Europe conference held in France, most buyers had plans to make purchases, which drove up international prices. Among them, the FOB price of low-grade Baltic small-grain urea increased by $3 per ton compared to the previous week, while the high-grade price remained stable at 192–195 dollars per ton ； The FOB price of Ujine small-grain urea was 3 dollars per ton higher at the lower end compared to the previous week, while the price at the higher end remained stable at 194–195 dollars per ton ； The FOB price of small-grained urea in China increased by $8 per ton at the lower end compared to the previous week, while the price at the higher end rose by $10 per ton, remaining at 202–205 dollars per ton. 　　Regional situation: Last week, domestic urea prices showed a steady upward trend, with prices rising mainly across all regions. In regions such as Heilongjiang, Shanghai, Jiangsu, Anhui, Fujian, Jiangxi, Shandong, Henan, Hubei, Guangdong, Chongqing, Sichuan, Yunnan, and Shaanxi, the wholesale and retail prices of urea have increased by 10–60 yuan per ton ； In Shanxi, Hunan, Gansu, Xinjiang, and other regions, prices dropped by 10-35 yuan per ton. Prices in the remaining areas remained largely stable. 　　Recently, there has been virtually no agricultural demand for urea in the domestic market, and industrial demand continues to decline as the operating rates of compound fertilizer manufacturers fall ； On the supply side, the operating rate of urea producers continues to decline. Shipments by enterprises remain steady, and coal prices continue to provide support for production costs ； In terms of the international market, the U.S. market is expected to remain active for some time to come. It is expected that the supply and demand in the urea market will remain roughly balanced in the short term, with prices trending upward steadily supported by costs. (China Agri-Materials News Network)

Rising Costs in the Urea Market Drive Up Prices Author/Source: Date: 2016-11-02 Clicks: 9 http://www.nzdb.com.cn/u/cms/www/201611/klyj02093947.png http://www.nzdb.com.cn/u/cms/www/201611/owky02093948.png Last week (October 24–October 28), domestic urea supply decreased, and prices continued to rise supported by rising coal prices. On October 31, China’s urea wholesale price index (CNPI) was 1367.32 points, up 37.19 points on a month-on-month basis, representing a growth rate of 2.80% ； Compared to the same period last year, it decreased by 231.77 points, a drop of 14.49% ； It dropped by 495.93 points from the base period, representing a decline of 26.62%. China’s urea retail price index (CNRI) stood at 1,455.44 points, up 19.71 points on a month-on-month basis, representing a growth rate of 1.37% ； A decrease of 246.13 points on a year-on-year basis, representing a decline of 14.47% ； It dropped by 449.52 points from the base period, representing a decline of 23.60%. 　　Supply situation: Recently, more and more urea producers have suspended operations for maintenance, leading to a continuous decline in operating rates. Last week, the overall operating rate of domestic urea production fell to around 53%, while that of gas-fed plants remained at roughly 30% ； The anthracite market remains generally stable, with prices in some major producing areas for lump coal rising by 50 yuan per ton ； As companies in the ammonia synthesis sector resume operations, supply is ample and prices have dropped slightly. 　　Demand situation: There is currently no overall demand for urea in the domestic agriculture sector ； In the industrial sector, winter stockpiling is progressing slowly; the operating rates of compound fertilizer manufacturers continue to decline. Affected by the losses incurred during last year’s winter stockpiling efforts and the fact that the meeting related to phosphate-based compound fertilizers has not yet taken place, distributors are adopting a cautious approach, ordering goods carefully and reducing their demand for urea ； The export market showed slight activity, with some domestic goods being consolidated at ports. 　　International market: In terms of the international market, at the FMB Europe conference held in France, most buyers had plans to make purchases, which drove up international prices. Among them, the FOB price of low-grade Baltic small-grain urea increased by $3 per ton compared to the previous week, while the high-grade price remained stable at 192–195 dollars per ton ； The FOB price of Ujine small-grain urea was 3 dollars per ton higher at the lower end compared to the previous week, while the price at the higher end remained stable at 194–195 dollars per ton ； The FOB price of small-grained urea in China increased by $8 per ton at the lower end compared to the previous week, while the price at the higher end rose by $10 per ton, remaining at 202–205 dollars per ton. 　　Regional situation: Last week, domestic urea prices showed a steady upward trend, with prices rising mainly across all regions. In regions such as Heilongjiang, Shanghai, Jiangsu, Anhui, Fujian, Jiangxi, Shandong, Henan, Hubei, Guangdong, Chongqing, Sichuan, Yunnan, and Shaanxi, the wholesale and retail prices of urea have increased by 10–60 yuan per ton ； In Shanxi, Hunan, Gansu, Xinjiang, and other regions, prices dropped by 10-35 yuan per ton. Prices in the remaining areas remained largely stable. 　　Recently, there has been virtually no agricultural demand for urea in the domestic market, and industrial demand continues to decline as the operating rates of compound fertilizer manufacturers fall ； On the supply side, the operating rate of urea producers continues to decline. Shipments by enterprises remain steady, and coal prices continue to provide support for production costs ； In terms of the international market, the U.S. market is expected to remain active for some time to come. It is expected that the supply and demand in the urea market will remain roughly balanced in the short term, with prices trending upward steadily supported by costs. (China Agri-Materials News Network)

Singing all the way: Is the urea industry heading back to rationality? Author/Source: Gold and Silver Island Date: 2016-11-03 Click-through rate: 1 Since October, the domestic urea market has seen continuous price increases. Prices have been rising steadily across various regions. According to the Gold and Silver Island Urea Price Index, as of the end of October, the index stood at 1,312, representing an 8.53% increase compared to early October. In some areas, prices rose by as much as 150 yuan per ton. With prices continuing to climb, will the urea industry finally return to rationality? 　　Rising costs are the key factor; the imbalance between supply and demand remains unchanged. Since October 2016, domestic demand for urea has not shown any improvement and has actually declined. There is a severe shortage in the agricultural sector, while industrial demand is limited to occasional purchases. Although production levels have dropped significantly, the actual output in October was still around 4.2 million tons. The market thus continues to suffer from an imbalance between supply and demand; therefore, the upward trend in prices this time is not driven by such imbalances. The key factor driving up market prices is the significant increase in costs. According to JinYinDao, coal prices have been rising continuously since October, with weekly increases of 30–50 yuan per ton. This has led to a continuous rise in enterprises’ costs. According to JinYinDao, the theoretical cost of urea produced through new coal-based chemical processes has increased by more than 100 yuan per ton. As of the end of October, the theoretical profit margin for such urea production facilities was only around 2%. The pressure on costs and the decline in profits have prompted urea manufacturers to raise prices significantly on their own, thereby driving up market prices. However, from the perspective of a market economy, the imbalance between supply and demand in the domestic urea market remains difficult to resolve. 　　Where will the market go after the sharp rise? Positive factors: 1. Exports are seen as promising. In the fourth quarter of 2016, demand for international urea was strong, and China’s offshore prices continued to rise, driven either by increasing domestic costs or by upward trends in the overall international market. Moreover, the export tariffs on the urea industry in 2017 may be abolished, which will reduce companies’ export costs to some extent ； Moreover, the RMB has been depreciating, which also provides some support for exports ； Therefore, the future export outlook is viewed positively by many market participants. 　　2. Costs will continue to rise. It is understood that due to the high coal consumption associated with heating in the northern regions, stringent environmental and safety inspections, as well as production cuts and price controls imposed on coal enterprises, coal output remains low. This is expected to lead to further increases in coal prices. Consequently, the costs for urea producers may continue to rise; in order to maintain profitability, these companies will likely keep raising their prices. 　　3. The demand for compound fertilizers is expected to be strong in the later stage. At the beginning of October, large compound fertilizer manufacturers had stockpiled some supplies, but most small and medium-sized companies in this sector did not have much urea in stock due to poor advance orders. It is expected that after the meeting on phosphate-based compound fertilizers, these companies will start holding ordering meetings one after another; production levels are likely to increase in the latter part of the month, and demand may arise at that time. 　　4. Enterprises have sufficient advance receipts. Since October, the urea market has seen two rounds of temporary price increases. In both instances, companies secured a large number of orders; they now have ample backlogs to fulfill. Particularly in Shanxi Province, many companies have stopped accepting new orders, leading to a temporary shortage in market supply. 　　Bearish factors: 1. Overall, there is still a lack of demand ； 2. There has been no significant increase in export volumes; even with the removal of tariffs, China’s high costs result in insufficient competitiveness ； 3. After the advance orders have been sent, the company may face a significant risk of having a lack of orders, and it will also be difficult to sustain operations relying solely on costs ； 4. Some market participants lack confidence, believing that the rise in prices is not rational, and that a sharp drop could occur once the peak is reached. 　　In summary, JinYinDao Information believes that in the short term, whether driven by costs or pending orders, the urea market will be able to maintain a steady upward trend; it is likely to remain strong throughout November. However, in terms of the industry’s future, progress will still rely on the elimination of outdated production capacity in order to foster healthy development in the urea industry. 　　Capacity issues are crucial; outdated production capacity will continue to be phased out. Phasing out such capacity in order to achieve a balance between supply and demand is the general trend for the development of the urea industry in the future. Judging from the current market situation, the operating rate of urea production has been declining since July. A major reason for this is the continuous shutdowns of traditional coal-based chemical plants, as well as the reduction in production by large manufacturers from their existing facilities. With rising coal prices, traditional coal chemical processes are now suffering heavy losses, and their gradual phasing out is inevitable. At present, the plants that are still in operation in regions such as Shandong, Anhui, Jiangsu, Hebei, and Henan are mostly equipped with new coal chemical processing technologies; fixed-bed plants, which have higher costs, will be phased out over time. 　　In the future, as older plants are phased out, the production capacity in the urea industry will gradually become more rational, and only then can the urea market be said to have returned to normality. The upward trend in prices this time is largely due to companies raising their quotes in order to maintain profits; it is merely a temporary improvement. (Cai Yingchao)

China’s Fertilizer Wholesale Price Composite Index rose slightly Author/Source: Date: 2016-11-02 Clicks: 17 http://www.nzdb.com.cn/u/cms/www/201611/zjrc02094721.png http://www.nzdb.com.cn/u/cms/www/201611/tjxf02094722.png Last week (October 24–October 28), China’s Fertilizer Wholesale Price Composite Index (CFCI) increased slightly. 　　On October 31, the China Fertilizer Wholesale Price Index (CFCI) was 1,697.76 points, up 19.11 points on a month-on-month basis, representing a growth rate of 1.14% ； A decrease of 304.30 points on a year-on-year basis, representing a decline of 15.20% ； It dropped by 681.11 points from the base period, representing a decline of 28.63%. On October 31, China’s Compound Fertilizer Retail Price Index (CCRI) was 2165.31 points, down 18.81 points on a month-on-month basis, representing a decline of 0.86% ； It dropped by 281.40 points from the base period, a decline of 11.50%. 　　Supply situation: In the urea market, rising coal prices have provided strong support for urea costs. Coupled with consistently low average production levels among enterprises, some manufacturers have a large number of orders pending fulfillment, which has strengthened their willingness to maintain high prices. As a result, urea prices are showing an upward trend while remaining stable. The trading atmosphere in the diammonium phosphate market is weak, with overall sales performance for companies remaining modest. The supply in the potassium fertilizer market has decreased, while prices have remained relatively stable overall ； The composite fertilizer market remains at low levels in terms of transaction volume. Prices of upstream materials such as urea and monoammonium phosphate are on the rise, while there is a strong bearish sentiment regarding potash fertilizers. Amidst mixed positive and negative factors, the composite fertilizer market fails to recover. 　　Demand situation: In the urea market, there is no significant increase in purchasing demand from downstream agricultural sectors, while industrial demand remains stable; some supplies are being gathered at ports. The domestic and international markets for diammonium phosphate are weak; winter storage initiatives are progressing slowly, and downstream distributors are fairly pessimistic about future market conditions. Agricultural demand for potash fertilizer remains weak; currently, the industrial sector for compound fertilizers is primarily drawing down its inventories, resulting in sluggish demand for potash fertilizer. Demand for compound fertilizers remains weak, with few new orders being placed by companies. 　　International market: International urea prices continued to rise, but this did not provide strong support for an increase in the prices of urea exports from China ； The international diammonium phosphate market continued to decline; last week, only Pakistan showed demand for purchases, and the export prices of diammonium phosphate dropped further ； The international potash market remains stable, with decent demand for potash in Southeast Asia and South America. 　　The urea market is facing supply constraints and rising prices; raw material coal continues to show an upward trend, providing strong support for urea costs. However, as we are currently in a low-demand period, it is expected that the market will remain stable in the near term, with slight upward potential in some areas ； The domestic demand for diammonium phosphate is at a low level, and there are no significant positive factors in the international market in the short term; it is expected that the diammonium phosphate market will remain in a state of steady but weak performance ； The supply of potassium fertilizers has decreased, but the overall inventory levels remain high; there is generally a lack of confidence in the market among end-users, so prices are expected to remain stable in the near term ； Compound fertilizers are in a transitional period at the end of autumn, with winter storage not yet fully underway; there is supply in the market but no demand. The overall production rate of these enterprises remains low. It is expected that after the meeting on phosphate-based compound fertilizers, some guidance may be provided regarding the trend of compound fertilizers, with prices remaining stable but on a downward trajectory in the short term. (China Agri-Materials News Network)