Urea Prices Hold Steady at Lows, Market Awaits Favorable Policy

Urea Prices Hold Steady at Lows

Since November, the urea market has continued its downward trend. As of now, urea prices in Shandong and many other places have fallen below 1,500 yuan/tonne, with actual transaction prices in some areas at only 1,450 yuan/tonne, and prices in Shanxi falling even further to 1,400 yuan/tonne. Although urea prices have fallen noticeably, market transactions have shown no obvious improvement. As the end of the month approaches, affected by the start of winter storage in some regions, urea prices have held steady at lows.

⟦NL> Yang Tongyu, assistant general manager of Henan Jinkai Group Yanhua Chemical Co., Ltd., said: “At present, the mainstream ex-factory price in Henan has fallen to 1,450 yuan/tonne. Because there is no favorable stimulus in the market, transaction volumes are not large. At present, in addition to joint storage and joint sales, enterprises are also conducting guaranteed-bottom-price sales, with a floor price of 1,500 yuan/tonne, guaranteed until February next year.”

Unlike the Henan market, after prices in Shandong fell below 1,500 yuan/tonne, the market showed signs of starting up. The author learned from Liu Weichang, sales manager of Ruixing Group Co., Ltd.: “Urea prices are currently holding steady at lows, with mainstream quotes of 1,490-1,500 yuan/tonne. Although most mainstream enterprises in Shandong are currently producing at full capacity, inventory pressure is not great. At present, in addition to local demand, supply mainly flows to Northeast China, Anhui, Jiangsu and other places.”

Overall, after the earlier adjustment, urea prices are now at a low level. Whether from the perspective of cost or policy expectations, current urea prices have no room to fall further. Yang Tongyu said that at current prices, it can be said that 90% of enterprises are operating at a loss. “The recent introduction of coal market rescue policies has driven up coal prices, supporting the stabilization of current urea prices, but it has also increased production pressure on enterprises, and the loss-making scope of the urea industry is still expanding. In addition, market expectations for policy also provide strong support for the urea market.”

The Market Needs to Regain Confidence

It can be said that this round of urea price correction was intended by urea enterprises to trade price for volume, but in the earlier period this did not go as hoped and even intensified the market's wait-and-see sentiment.

Affected by the rise in phosphate rock prices, phosphate fertilizer prices rose steadily, while the rise in coal prices did not bring obvious support to the urea market, mainly due to the severe lack of market confidence. Yang Tongyu said, “From a cost perspective, current urea prices have already fallen below enterprises' production costs, but because market confidence is severely lacking, the market's wait-and-see sentiment has intensified. Markets in some regions have started up, but signs of a nationwide market start-up are not obvious.”

Liu Weichang likewise said that confidence is currently the key factor affecting the urea market. “After urea prices tested the bottom for a second time, the market did not accept it. Although enterprises' overall operating rates remain high, because of earlier port-collection demand, inventory levels are not large. As winter storage markets in Northeast China and other places gradually start up, urea prices are expected to rebound from lows.” At present, some local markets have already started up, but only some grassroots dealers are buying goods, while some large dealers are still in a wait-and-see state.

Quietly Waiting for Favorable Policies to Be Introduced

For a long time, market discussion about value-added tax and tariff policies for the urea industry has continued, but because the policies have still not been introduced, the market remains expectant.

Although the industry as a whole has overcapacity, affected by rising natural gas prices, most gas-based enterprises are currently shutting down production, and newly added capacity has not come into play either, so urea's actual output and demand are basically in balance. Once the export tariff is relaxed, it will be a major positive for both enterprises and the industry. The restoration of value-added tax will increase urea costs by 30-50 yuan/tonne. For enterprises on the edge of losses, the restoration of value-added tax will support current urea prices in rising steadily. Liu Weichang believes that current urea prices are already at the bottom, and with the introduction of favorable policies, urea prices may well reach the 1,600 yuan/tonne mark next spring.

At present, favorable policies for the urea market have not yet landed, which is also the main reason for the current market's wait-and-see attitude. Once the policies land, they will drive urea prices to rise steadily. “Whether it is tariff policy or value-added tax, for the urea market they are substantive positives, not only effectively easing the pressure of overcapacity but also supporting higher urea prices. Yang Tongyu expects that with the gradual start-up of the winter storage market and the increase in demand from compound fertilizer enterprises, prices will gradually stabilize in the short term. As favorable policies gradually become clearer in mid-December, urea prices are expected to rebound.