The urea futures market is volatile in the first half of 2022

June 12, 2024, 9:21 AM

Agricultural Resources Herald

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Highlights at a glance

From January to July 2022, China's urea futures market saw primary activity in the UR2205 and UR2209 contracts. Trading volume declined significantly compared to previous periods—dropping by over 10 million lots from the second half of 2021 and more than 11 million from the first half of 2021—largely due to rising margin requirements, higher handling fees, and increased contract values. Despite reduced volume, price volatility remained high. The peak price of 3,259 yuan per ton occurred in the UR2206 contract, driven by tight spot supply and short-covering pressures, leading to a substantial futures premium. In contrast, the lowest price of 2,172 yuan appeared in the UR2301 contract, reflecting bearish sentiment on distant months amid negative news and distortions from inter-month arbitrage. Overall, while urea futures trends aligned with the spot market direction, futures exhibited greater volatility and sharper swings, with spot prices adjusting more gradually and with a lag.

From January to July 2022, domestic urea futures experienced two main futures contracts, UR2205 contract and UR2209 contract. In the first half of 2022, the trading volume of urea futures was 9.77 million lots, down 10.33 million lots from 20.1 million lots in the second half of 2021, and 11.35 million lots down from 21.12 million lots in the first half of 2021. The comparison of the two sets of data has a great decline, which has a lot to do with the sharp increase in the value of urea futures, the margin ratio, and the handling fee.

The current trend is basically the same: in the first half of 2022, the highest point of urea futures price appears in the UR2206 contract, the price is 3259 yuan (ton price, the same below); the lowest point appears in the UR2301 contract, the price is 2172 yuan. The highest price reflects the tight supply in the spot market at that time and the inability of the shorts in the futures market to organize the delivery of the supply, resulting in a substantial premium of urea futures to the spot urea; the lowest price reflects the pessimistic expectations of the distant month due to unexpected bad news at that time, and the existence of inter-month arbitrage orders makes the price of the near month When extremely distorted, far-month prices are more deviated from reality. In general, the trend of urea futures and the spot market is basically the same, but the fluctuation of futures is larger, the fluctuation of spot is relatively small, and the market performance is also slightly lagging.

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