Urea: "Heart" Comes First, "Wind" Comes Second.
June 12, 2024, 9:21 AM
Sensheng Yan
3039
Guide
Highlights at a glance
In November, China's domestic urea market saw a rebound after months of decline, with spot prices rising in key regions like Shandong, Henan, and Hebei. Futures outperformed, surging 8.04% to 2,405 yuan/ton by early November, driven by improved sentiment and winter reserve hedging as futures traded below spot. Investor confidence, fueled by expectations of policy easing and better logistics due to relaxed pandemic controls, became a key driver. However, fundamentals remain weak: urea inventories reached 1.037 million tons, up 30% year-on-year, with sluggish off-season demand and slow destocking in downstream industries. High stockpiles, especially in Inner Mongolia, Xinjiang, and Hebei, constrain sustained price gains. Meanwhile, coal prices—urea’s main input—have softened due to ample supply and weak industrial demand, lowering production costs and improving margins slightly. Despite the current "heart-warming" market sentiment, actual recovery hinges on inventory reduction and strong
In November, the domestic urea market price stopped falling and rebounded. It is reported that the market price of urea in Linyi, Shandong Province has been raised from 2,440 yuan/ton to 2,500 yuan/ton; The market price of urea in Shangqiu, Henan increased from 2,430 yuan/ton to 2,500 yuan/ton; The increase in Hebei is slightly smaller, and the market price of urea in Shijiazhuang has been raised from 2,520 yuan/ton to 2,560 yuan/ton. Compared with the slow recovery of the spot market price of urea, the futures market reacted significantly. As of November 8th, the contract of urea UR2301 closed at 2405 yuan/ton, with an increase of 8.04% by 150 yuan/ton in one week. As to why the spot market is rising, we can refer to the author's point of view put forward last week: the disk price of futures is lower than the spot price, which is more suitable for winter reserve enterprises to buy hedging.
On the whole, the resistance to the price increase of urea spot market is large, especially the loose cost and high inventory, which to some extent become the resistance to the continued increase of urea market. Not only that, but the gap between futures and spot prices still reflects that the foundation for the rapid rise of the current futures market is still not stable, and it is still necessary to wait for the fundamentals to be further confirmed and improved.
The urea market price is "heart-warming"
Recently, the epidemic situation of COVID-19 in China is still grim, which has different effects on the mainstream urea production and sales areas. On October 28th, urea futures once fell to 2180 yuan/ton in intraday trading, setting a new low since October. However, in the stalemate atmosphere of the spot market, the futures market took the lead in stabilizing, and then opened up the upside of 200 yuan/ton. Analysis of the reasons for the rise: on the one hand, the futures have been raised, and the spot market has followed up the price adjustment; On the other hand, the increase of downstream inquiry and purchase also brought about a better transaction. At the same time, the relaxation of epidemic control in some areas is conducive to market shipment, and the spot price increase of urea is reasonable.
From the time line, we can see the current domestic urea market. On November 2nd, there was a "small composition" of a brokerage chief's view on the market, and the bulk commodities as a whole stabilized and rebounded. Although the market is dubious, on November 4th, after an expert named Zeng put forward his policy opinion, the choice of stocks and commodities continued to soar, and the urea futures broke through 2300 yuan/ton in intraday trading. On Friday, the offshore RMB continued to weaken, and the market seemed to have higher expectations for policy relaxation. Urea futures began to hit 2,400 yuan/ton. The policy is expected to strengthen the demand expectation and make the market sentiment become hot within 2~3 days. Last Saturday, the policy statement expected by the market did not change significantly. On Monday, the domestic market collectively made a small adjustment. "Sometimes the wind blows. One wind moves, the other moves. Non-pneumatic, non-moving, benevolent heart. " In this round of domestic urea market price increase, the price has already been fulfilled before the fundamentals can change. The investor's "heart" is actually the main driver of this rise.
Aside from the "heart" of investors, we need to be clearly aware that the fundamental changes of urea are not enough to support the market surge, and the subsequent rise needs to be supported by destocking. The feedback from the spot market is not strong. After all, high inventory is a reality. Traders believe in "heart" and it is better to wait for "wind".
The current situation of high inventory can not be ignored.
As of November 2nd, the total inventory of domestic urea enterprises was 1,037,200 tons, up 62,900 tons from last week, up 6.46% from the previous month and up 30.38% from the same period last year. It is reported that the current inventory of one million tons is mainly distributed in Inner Mongolia, Xinjiang and Hebei, with a total of 592,000 tons, accounting for 57%. The demand for agricultural fertilizer preparation in off-season is not strong, and the operating rate of wood-based panel industry is not high. There is a backlog of compound fertilizer products, and the inventory has increased to 586,700 tons, up 32.62% year-on-year, so the demand for urea has weakened. It is not difficult to see that the weak demand in the off-season and the limited transportation jointly cause the accumulation of factory inventory.
The last million tons of stock was in the Spring Festival of 2020, and the demand was weak both times. But from the perspective of expectation, the expectation of winter reserve is obviously not as strong as the expectation of spring demand. Considering the current logistics situation, after the centralized release of winter storage demand, the downstream warehouse going speed will not be too fast, and it will take some time for the factory pressure to be relieved. High inventory will be the resistance of market rise in November, and the stability of price increase needs to be confirmed by going to the warehouse.
Coal prices are loose.
In terms of raw materials, after the important meeting, the coal output has increased. The overall market supply is gradually easing, and the difficulty of purchasing in the downstream customers' market is decreasing. Coal is in the off-season of consumption, the recovery of industrial electricity is slow, and the demand for terminal coal consumption is weak. The coal storage level of power plants is relatively high. The coal stocks of the six major power generation groups have increased by 11.72% year-on-year, and the daily consumption level is the same as that of 2021. Most power plants suspend the purchase of coal in the market under the current high coal price. Non-electric coal industry is affected by factors such as environmental protection and limited production in autumn and winter, low profit of coal chemical industry, epidemic situation affecting transportation, etc. The operating rate of enterprises decreases and the pace of replenishment slows down.
The supply and demand of the coal market in the port are weak, and affected by the epidemic situation in the main producing areas and the overhaul of Daqin line, the port transfer is kept at a low level. CCTD mainstream port coal inventory is 50.73 million tons, a year-on-year decrease of 5.43%. The demand for downstream thermal coal is weak. Recently, the port coal price has been lowered by 75 yuan/ton from the highest point at the end of October. At present, the price of smokeless lump coal is stable at 1930~1990 yuan/ton, down by 40 yuan/ton from last week; The price of Q5500 thermal coal in Qinhuangdao is 1565 yuan/ton, down by 20 yuan/ton from last week. With the arrival of the late heating season, the daily consumption of power plants will increase, and the coal price may be stable.
On the whole, the cost has been lowered, the products have risen, and the production profit of urea enterprises has improved slightly at this stage. However, the spot price is raised to determine the bottom of the market, but whether it can continue to rise or not, it still needs to go to inventory. The fundamentals of the market have not changed, while the valuation of futures is quietly rising. "Heartbeat" has happened, and the market can't return to the pessimistic state at the end of October. Waiting for the "wind" will take time to catalyze.
On the whole, the resistance to the price increase of urea spot market is large, especially the loose cost and high inventory, which to some extent become the resistance to the continued increase of urea market. Not only that, but the gap between futures and spot prices still reflects that the foundation for the rapid rise of the current futures market is still not stable, and it is still necessary to wait for the fundamentals to be further confirmed and improved.
The urea market price is "heart-warming"
Recently, the epidemic situation of COVID-19 in China is still grim, which has different effects on the mainstream urea production and sales areas. On October 28th, urea futures once fell to 2180 yuan/ton in intraday trading, setting a new low since October. However, in the stalemate atmosphere of the spot market, the futures market took the lead in stabilizing, and then opened up the upside of 200 yuan/ton. Analysis of the reasons for the rise: on the one hand, the futures have been raised, and the spot market has followed up the price adjustment; On the other hand, the increase of downstream inquiry and purchase also brought about a better transaction. At the same time, the relaxation of epidemic control in some areas is conducive to market shipment, and the spot price increase of urea is reasonable.
From the time line, we can see the current domestic urea market. On November 2nd, there was a "small composition" of a brokerage chief's view on the market, and the bulk commodities as a whole stabilized and rebounded. Although the market is dubious, on November 4th, after an expert named Zeng put forward his policy opinion, the choice of stocks and commodities continued to soar, and the urea futures broke through 2300 yuan/ton in intraday trading. On Friday, the offshore RMB continued to weaken, and the market seemed to have higher expectations for policy relaxation. Urea futures began to hit 2,400 yuan/ton. The policy is expected to strengthen the demand expectation and make the market sentiment become hot within 2~3 days. Last Saturday, the policy statement expected by the market did not change significantly. On Monday, the domestic market collectively made a small adjustment. "Sometimes the wind blows. One wind moves, the other moves. Non-pneumatic, non-moving, benevolent heart. " In this round of domestic urea market price increase, the price has already been fulfilled before the fundamentals can change. The investor's "heart" is actually the main driver of this rise.
Aside from the "heart" of investors, we need to be clearly aware that the fundamental changes of urea are not enough to support the market surge, and the subsequent rise needs to be supported by destocking. The feedback from the spot market is not strong. After all, high inventory is a reality. Traders believe in "heart" and it is better to wait for "wind".
The current situation of high inventory can not be ignored.
As of November 2nd, the total inventory of domestic urea enterprises was 1,037,200 tons, up 62,900 tons from last week, up 6.46% from the previous month and up 30.38% from the same period last year. It is reported that the current inventory of one million tons is mainly distributed in Inner Mongolia, Xinjiang and Hebei, with a total of 592,000 tons, accounting for 57%. The demand for agricultural fertilizer preparation in off-season is not strong, and the operating rate of wood-based panel industry is not high. There is a backlog of compound fertilizer products, and the inventory has increased to 586,700 tons, up 32.62% year-on-year, so the demand for urea has weakened. It is not difficult to see that the weak demand in the off-season and the limited transportation jointly cause the accumulation of factory inventory.
The last million tons of stock was in the Spring Festival of 2020, and the demand was weak both times. But from the perspective of expectation, the expectation of winter reserve is obviously not as strong as the expectation of spring demand. Considering the current logistics situation, after the centralized release of winter storage demand, the downstream warehouse going speed will not be too fast, and it will take some time for the factory pressure to be relieved. High inventory will be the resistance of market rise in November, and the stability of price increase needs to be confirmed by going to the warehouse.
Coal prices are loose.
In terms of raw materials, after the important meeting, the coal output has increased. The overall market supply is gradually easing, and the difficulty of purchasing in the downstream customers' market is decreasing. Coal is in the off-season of consumption, the recovery of industrial electricity is slow, and the demand for terminal coal consumption is weak. The coal storage level of power plants is relatively high. The coal stocks of the six major power generation groups have increased by 11.72% year-on-year, and the daily consumption level is the same as that of 2021. Most power plants suspend the purchase of coal in the market under the current high coal price. Non-electric coal industry is affected by factors such as environmental protection and limited production in autumn and winter, low profit of coal chemical industry, epidemic situation affecting transportation, etc. The operating rate of enterprises decreases and the pace of replenishment slows down.
The supply and demand of the coal market in the port are weak, and affected by the epidemic situation in the main producing areas and the overhaul of Daqin line, the port transfer is kept at a low level. CCTD mainstream port coal inventory is 50.73 million tons, a year-on-year decrease of 5.43%. The demand for downstream thermal coal is weak. Recently, the port coal price has been lowered by 75 yuan/ton from the highest point at the end of October. At present, the price of smokeless lump coal is stable at 1930~1990 yuan/ton, down by 40 yuan/ton from last week; The price of Q5500 thermal coal in Qinhuangdao is 1565 yuan/ton, down by 20 yuan/ton from last week. With the arrival of the late heating season, the daily consumption of power plants will increase, and the coal price may be stable.
On the whole, the cost has been lowered, the products have risen, and the production profit of urea enterprises has improved slightly at this stage. However, the spot price is raised to determine the bottom of the market, but whether it can continue to rise or not, it still needs to go to inventory. The fundamentals of the market have not changed, while the valuation of futures is quietly rising. "Heartbeat" has happened, and the market can't return to the pessimistic state at the end of October. Waiting for the "wind" will take time to catalyze.
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June 12, 2024, 9:21 AM
June 12, 2024, 9:21 AM
