Indian Tender Lands, Urea Moves Lower

I. Market Overview: Futures Lead the Decline, Spot Stuck and Weak

In the first trading week after the National Day holiday, the urea market as a whole showed a pattern where futures declined far more than spot, and small-grade product weaker than large-grade.

On the futures side, on October 8 the front-month UR2701 contract settled at 1,768 RMB/t, a marginal gain of 0.11%. But the next day the board reversed sharply: on October 9 the front-month contract fell 2.04%, closing at 1,733 RMB/t, with an intraday low touching 1,730 RMB/t. Having entered a window where bullish catalysts are exhausted, it has given back all the gains since September, and is at risk of a single downward probe toward the "policy floor" set in early August. On the spot side, small-granular ex-factory prices in Shandong were at 1,690–1,740 RMB/t and in Henan at 1,660–1,690 RMB/t, down roughly 20 RMB/t from before the holiday. The large-grade and small-grade trends continued to diverge. Shandong large-grade held at 1,930 RMB/t, Henan and Shanxi large-grade around 2,000 RMB/t, and Hebei at 1,980 RMB/t; supported by export-loading demand for large-grade, quotes were markedly firmer than small-grade.

II. Both Fundamentals and Expectations Are Weak

The marginal change on the supply side after the holiday is the core factor weighing on prices. Previously idled units resumed production around the holiday; daily urea output quickly rose to 220,000 tonnes, with the operating rate rebounding to 91.80%. Within the coal-chemical sector, the weekly operating rate of urea rose sharply by 6.26% WoW, with operating rates in Anhui, Hebei, Jiangsu and Shaanxi rising MoM and only Xinjiang declining. Daily output above 220,000 tonnes means supply has returned to its yearly high, factories are well-stocked, and the loose-supply pattern is further entrenched.

On the demand side, the market entered its typical seasonal lull after the holiday. The autumn-fertilizer peak has essentially wound down; the continued decline in phosphate prices has made the market even less willing to buy urea, and wheat basal dressing in the Huang-Huai-Hai region only saw sporadic restocking without scale purchasing. Compound-fertilizer operating rates remain low; enterprises buy urea mainly on small rigid-need orders with little appetite to stockpile. On the industrial side, demand for panels and melamine was unremarkable, lacking concentrated volume. For winter storage, the first week after the holiday was dominated by price enquiries, with large orders not yet started. The off-season reserve inflow pace has not fully begun, and cannot provide effective support to the demand side in the near term.

During the holiday, logistics and shipping were disrupted and in-plant inventories accumulated visibly. As of October 8, enterprise inventories rose to 1,482,700 tonnes, up 3.95% MoM, with Inner Mongolia and other provinces leading the increase. Port inventories, meanwhile, edged down to 542,900 tonnes, mainly because the concentrated shipments for the earlier Indian tender had largely ended and the port-loading pace slowed.

III. Cost Side: Coal Prices Firm, Losses Persist

Coal prices held firm after the holiday; chemical coal stopped falling and rebounded 10–20 RMB/t, with gasification bituminous coal averaging 997 RMB/t and anthracite lump coal averaging 1,313 RMB/t. Sustained high feedstock costs continued to squeeze urea production margins. As of October 8, the theoretical profit of the coal-based fixed-bed process was -114 RMB/t, the new-type coal-gasification process -7 RMB/t, and the gas-based process was mired in a -301 RMB/t loss.

Yet even though the fixed-bed and gas-head processes are already persistently loss-making, the supply side has not reached a stage of voluntary large-scale cutbacks; the pace of industry-wide production cuts, let alone capacity removal, is slow, and we are still in the early stage of the capacity-removal cycle. The cost-side "hard floor" remains, but its supporting power is weaker than the order-taker pressure, and before a new demand driver emerges cost support has little reference value.

IV. International Market: Indian Tender "Floods Supply, Cuts Prices," Turning Bullishness into Bearishness

The core event this week was the landing of India's IPL urea tender result, which fell well short of market expectations.

This tender planned to procure 1.7 million tonnes, but 25 suppliers offered as much as 5.349 million tonnes — extremely fierce competition on the supply side, giving buyers strong room to talk prices down. The lowest CIF offers were Millennium at 352.1 USD/t East Coast and Aditya Birla at 356.25 USD/t West Coast, further sharply below the 390.25 USD/t lowest East Coast price in the September Indian tender. Based on current freight, China's FOB was only 325–327 USD/t, a sharp contraction from the pre-holiday China small-granular FOB quote of 365–380 USD/t.

The impact of the Indian tender on the international market was immediate. China's bulk small-granular FOB fell to 320–355 USD/t, down 25–45 USD/t from last week; Middle East small-granular fell 15–20 USD/t; Brazil large-granular dropped to 455–470 USD/t CIF. The Indian tender's "flood-supply, price-cutting" did not deliver the export upside for the domestic market — instead, by depressing the international price center, it indirectly weakened the domestic export profit outlook, and sentiment shifted from "export as a floor" to "export under pressure."

V. Policy and Exports: Quota Releases' Upside Diluted by Price Reality

Each batch of export quotas released this year has raised market expectations for export growth and, at times, lifted sentiment. But actual data show the export-realization pace is far below expectations. The August export volume announced in late September was 524,600 tonnes, far short of the prior expectation of 800,000–900,000 tonnes. Since export policy loosened in late May, four batches of export quotas have been issued, with the two batches issued before September alone totaling nearly 5 million tonnes; yet total June–August exports were only 935,100 tonnes. Although there is a lag in shipment pace, the magnitude is clearly low. Exports in September may grow visibly on the back of Indian-tender shipments, but overall volumes will still struggle to match the quota magnitude.

The constraints of the export-quota system, the depressed Indian tender prices, and the reality of traders' inverted profits together mean the actual pull of exports on the domestic market is limited. Exports have gradually been downgraded from a "core bullish factor" to a "sentiment disturbance," and may even become a negative-feedback driver that lowers international prices and depresses domestic sentiment — a situation that may become the norm until domestic and international fundamentals see a new driver. Whether the lagged cycle of actual export volume can resonate with domestic needs such as various reserves is one of the core observations for the fourth quarter.

VI. Forward View: Range-Bound Weak Trading, Watch Two Key Variables

Combining the first-week post-holiday performance, the urea market is in the short term under a triple drag of "high supply + weak demand + export upside fizzling." Current prices lack bullish drivers and are trading weak, but given cost and policy floor support, the room for a deep decline may be limited.

Two variables warrant close tracking going forward:

First, the pace of winter-storage launch. If off-season reserves concentrate inflows around November, they will provide stage-by-stage support to the demand side, and the high-supply pressure is expected to be partly absorbed. October enterprise inventories are projected to rise first then fall, in a range of 1.45–1.60 million tonnes; the timing and strength of the winter-storage launch will determine the position of the inventory inflection point. Combined with subsequent grassroots spring-cultivation stocking, export cargo flow, and Q4 macro expectations, there could be a trend rebound.

Second, the trajectory of coal prices. Current firm coal prices provide a cost hard-floor for urea, but if coal-supply-guarantee policies keep delivering and restarts bring coal prices down, the cost defense line carries downside risk and the price center could probe lower. That said, coal prices already showed a stabilizing-rebound tendency this week, and given the still-slow resumption pace at Shanxi mines and the persistent disturbance at Inner Mongolian coal ports, coal-price support is clearly robust. Whether it can drive downstream chemical-sector sentiment linkage still depends on the durability and strength of next week's coal-price gains. But to be fair, for urea the short-term effect can only be some sentiment lift or floor support; the cost increase itself cannot change its own near-term fundamental contradiction. The optimistic case is merely that cost-driven price-raising sentiment may lift stage-by-stage mid/downstream purchasing willingness and produce a resonance positive feedback — but without a demand increment at present, an optimistic outlook is hard to give, and instead price rises may accelerate demand's negative feedback. Yet if coal's upmove persists to month-end and forms a medium-to-long-term logic, it could trigger reserve-demand follow-through, thereby driving grassroots position-building sentiment to connect with the market's spring-cultivation expectation logic.

Overall, after the National Day holiday the urea market did not see the resonant upmove of "export-quota floor + Indian-tender upside"; instead, due to Indian-tender price-cutting, rising daily output, and a domestic demand lull, it exhibited a pattern of futures leading the decline, spot stuck range-bound, and the center of gravity edging lower. Short-term prices will mainly trade range-bound and weak; a true directional driver still awaits winter-storage volume or a fresh change on the cost side. Before that arrives, there is no need to be overly pessimistic about continued price declines — rather, it is an opportunity to prepare for medium-to-long-term demand expectations.