Urea Monthly Review: Market Demand Stagnates Before the Festival, Trading Warms Up After

Urea Market Analysis:

Urea Market Price Analysis:

In February, the domestic urea market shifted from weak to strong, with significant changes due to the Spring Festival holiday. In the first half of the month, as the holiday approached, the market was weak, with sparse trading and stagnant demand. In the latter half, the post-holiday resumption of work and agricultural demand revival led to active market trading and price stabilization after an increase.

According to Feidoodoo data, as of February 29, 2024, the domestic small granule urea price index was 2321.95, a 16.48% decrease from the previous year.

Before the Spring Festival, manufacturers focused on pre-receiving holiday orders, and some factories saw improved order acceptance after price reductions, with slight price adjustments upwards. Traders generally followed the market at low prices, and agricultural products moved well, but industrial compound fertilizers did not perform well, operating at low production levels and reducing enthusiasm for raw material procurement. Weather conditions such as rain and snow began to limit factory shipments, weakening the market transaction atmosphere and reducing the momentum for price increases. Supported by pending orders, firms had a strong intention to maintain prices, leading to a gradual convergence of lower-end market prices towards the higher end. Prices stabilized with minor adjustments amid resumed supply from previously shut-down companies and the impact of supply-side constraints.

After the Spring Festival, the market atmosphere showed signs of improvement, with agricultural demand driving increased transactions, supporting post-holiday urea price increases. However, as prices continued to rise, agricultural demand weakened, and traders became more cautious. Industrial demand gradually resumed as factories restarted slowly, with weak support for prices. Weather conditions further slowed market trading, and slow holiday transportation increased company inventories, along with normal operation of plants and high daily production, leading to a surplus supply and a predominantly strong market operation.

Domestic Urea Industry Operation Statistics:

According to Feidoodoo data, the domestic urea industry's average operating rate was 84.22% this month, a 10.17% increase from the previous month and a 7.52% increase year-on-year. From January to February 2024, the average operating rate was approximately 79.14%, a 5.15% increase from the previous year's 73.99%. The monthly operating rate continued to exceed the previous year's level, with high production levels, and resumed operations from previously shut-down plants maintaining high industry operation rates during the Spring Festival, keeping market supply abundant and controlling price increases.

Domestic Urea Production Trends:

This month, domestic urea production was approximately 5.4067 million tons, a 6.74% month-on-month increase and a 19.88% year-on-year increase. From January to February 2024, the total urea production was approximately 10.4722 million tons, a 14.71% increase from the previous year's 9.1289 million tons. Resumed production from previously shut-down companies and limited new shutdowns maintained high daily production levels, leading to a continued upward production trend.

Domestic Urea Inventory Trends:

Port Monthly Inventory Trends:

As of February 23, domestic urea port inventories were 187,000 tons, an 18,500-ton increase from the previous month and a 13,000-ton increase year-on-year. Port inventories increased slightly this month, with minor port congestion at the end of the month due to news impacts and limited port accumulation due to ongoing export restrictions.

Company Monthly Inventory Trends:

As of February 23, domestic urea company inventories were approximately 806,400 tons, a 222,400-ton increase from the previous month and a 123,200-ton decrease year-on-year. Company inventories increased this month but remained below the previous year's level. Spring Festival shipping reductions led to significant inventory accumulation, but post-holiday improvements in shipments were slowed by weather conditions, maintaining high company inventories.

Urea Market Forecast:

Cost-wise, post-holiday recovery in the upstream synthetic ammonia market pushed factory quotations higher. Despite high inventories and abundant supply, the market tested higher prices with cautious adjustments towards the end of the month, leading to a generally bullish sentiment.

Supply-wise, the market maintained high supply levels, with most urea plants operating at high rates during the Spring Festival, leading to sufficient spot supply and controlling urea price increases.

Demand-wise, market exit before the Spring Festival reduced demand, but post-holiday agricultural demand and cautious industrial procurement led to weak overall demand, with lower-end compound fertilizer transactions increasing and actual transaction prices leaning towards the lower end.

Export-wise, ongoing export restrictions maintained a cautious market outlook, with market sentiment boosted by end-of-month export news, necessitating continuous monitoring of policy news for the following month.

Overall, March 2024 is expected to see continued demand and abundant supply in the domestic urea market, likely maintaining stable prices with minor adjustments.