Urea Weekly: Market Impacted by Indian Standard News, Prices Rise then Fall

Market Overview:

Fertilizer Price Index：

This week, urea market prices first increased and then decreased, mainly affected by export news, leading to significant fluctuations in market sentiment. As of this Friday, the average price index for domestic urea small granules was 2511.70, an increase of 37.69 from last week, up by 1.52% compared to the previous week.

At the beginning of the week, influenced by the implementation of the Indian standard, and international prices being higher than domestic prices, the entire domestic market was stimulated. Factories tentatively increased their ex-factory prices, creating a strong market speculation atmosphere, and urea prices rose rapidly. However, subsequent news indicated a tightening of export policies, China's limited participation in this Indian standard, and risks of port inventory backflow, among other bearish news. The market's initial positive sentiment was impacted, and with limited support due to most factories having only a small amount ready for dispatch, downstream cautiousness in purchasing increased due to the price rise, leading many factories to lower their ex-factory prices. However, as company inventories were not high and port inventory backflow was minimal, the reduction in prices was relatively small, limiting the overall decline. In the latter half of the week, traders began to sell off goods, with selling prices often lower than the current market price due to the support of low acquisition costs earlier, forcing some factories to further reduce their prices, resulting in another price adjustment. However, new order transactions remained minimal, and purchases continued to be cautious.

Urea Delivery Area Prices：

Specifically, prices in the Northeast region increased to 2460-2550 RMB/ton. In North China, prices rose to 2320-2500 RMB/ton. In the Northwest, prices went up to 2500-2510 RMB/ton. In Southwest China, prices increased to 2420-2800 RMB/ton. Prices in East China fell to 2410-2470 RMB/ton. In Central China, small granule prices fell to 2430-2620 RMB/ton, while large granule prices remained stable at 2530-2610 RMB/ton. In South China, prices dropped to 2550-2600 RMB/ton.

Futures Warehouse Receipt Distribution：

As of this Thursday, there were 181 urea futures warehouse receipts at the Zhengzhou Commodity Exchange, a decrease of 346 from the previous week. A total of 215 receipts were delivered in October.

Industry Chain Dynamics

Rapid Daily Production Recovery：

This week, domestic urea production was approximately 1.2517 million tons, up 0.90% week-on-week, and up 19.10% year-on-year; daily production was 178,800 tons, a slight weekly increase and still higher than the same period in 2022. The domestic urea industry's operating rate was about 81.18%, up 0.73% week-on-week, and up 13.92% year-on-year; the operating rate slightly increased, still higher than the same period last year.

Looking at different processes, coal-based urea production was about 939,600 tons, up 13,800 tons from last week, and up 172,900 tons year-on-year, with an operating rate of about 80.29%, up 1.18% from last week, and up 13.98% year-on-year. Gas-based urea production was about 312,100 tons, down 2,600 tons from last week, and up 27,800 tons year-on-year, with an operating rate of about 83.99%, down 0.70% from last week, and up 14.03% year-on-year.

Market Inventory:

This week, domestic large granule urea port inventory was 145,000 tons, an increase of 11,000 tons from last week, and up 118,000 tons year-on-year. The quantity of large granule urea at ports continued to increase this week, still higher than the same period last year.

This week, domestic small granule urea port inventory was 123,500 tons, an increase of 16,500 tons from last week, but down 8,500 tons year-on-year. The quantity of small granule urea at ports increased this week, lower than the same period last year.

This week, company inventory was about 331,500 tons, a week-on-week decrease of 63,100 tons, a drop of 15.99%; port inventory was a total of 268,500 tons, a week-on-week increase of 11.41%.

Compound Fertilizer Industry：

This week, the operation rate of domestic compound fertilizer factories slightly increased, and winter storage followed suit, gradually improving the market atmosphere. In terms of demand, it's currently the winter storage phase, characterized by a large demand and a long period, with downstream and traders being cautious in their purchases, mostly buying as needed. Supply-wise, this week saw a slight recovery in the utilization rate of compound fertilizer capacity, but overall supply remained low. Along with generally low market inventories, downstream distributors intended to operate in batches, improving their mindset. Overall, with fewer influencing factors in the winter market and a narrower range of changes, the market is expected to remain relatively stable, with slight fluctuations in compound fertilizer prices expected next week.

Melamine Industry：

This week, the melamine market followed the urea price trend, first increasing and then stabilizing. On the corporate side, with sufficient pre-receipts and support from pending shipments, companies' ex-factory prices remained firm, with most maintaining stable operations. In terms of supply, the number of melamine factories resuming production after shutdowns remained stable this week, with the overall operation rate remaining stable and supply fluctuations small. In terms of demand, the downstream market was lackluster, focusing on essential purchases. Overall, the melamine market continued to operate weakly, with the current market mostly supporting firm prices, and melamine prices expected to remain firm next week.

International Market Quotes：

Internationally, the FOB price for bulk small granule urea from China was 365-380 USD/ton, with the high end increasing by 10 USD/ton; Baltic FOB price was 318-328 USD/ton, down 22-27 USD/ton from last week.

The FOB price for large granule urea from China was 385-390 USD/ton, with the low end decreasing by 5 USD/ton; Iranian large granule FOB price was 340-350 USD/ton, with the high end decreasing by 20 USD/ton.

Nitrogen Fertilizer Export Situation：

In September, China exported 1.19 million tons of urea, with a total of 2.82 million tons exported from January to September, an increase of 1.24 million tons from last year.

Future Outlook：

Supply: Daily production continues at high levels, but with increased maintenance in November, it is expected to fall below 180,000 tons in the short term.

Inventory: Currently, company inventories have been falling for two consecutive weeks. However, there is a large amount of port inventory, and there may be backflow risks due to tightening of export policies. The impact on short-term prices is still uncertain.

Market Forecast: With the cautious attitude of downstream buyers, urea prices may face downward pressure in the short term, especially as company inventories are not high and there is a risk of inventory backflow. However, considering the support of higher international prices, the decline may be limited.