Urea Weekly: Market Sentiment Boosted by Futures, Prices Trend Upward in Adjustment

Market Overview:

Fertilizer Price Index:

This week, the urea market saw prices initially rise then fall. Enterprises received a good volume of low-price orders earlier, and the bullish sentiment in futures markets spurred price adjustments upward. However, later in the week, due to insufficient follow-up purchases downstream, prices were adjusted downward. As of this Friday, the average price index for domestic small particle urea was 2612.59, an increase of 55.96 from last week, up 2.19% week-on-week.

In the first half of the week, enterprises raised their factory prices and controlled order acceptance, supported by a large volume of earlier low-price orders. With low inventory levels at the factories and high daily production, many manufacturers intended to accumulate inventory while shipping out products, leading to a shortage of market circulation and forcing downstream buyers to accept higher prices. Additionally, the positive sentiment from futures markets further strengthened manufacturers' market confidence and reluctance to sell, leading to higher market prices. In the second half of the week, the market's optimism was impacted, and as prices reached a peak, they began to fall. The market's acceptance of high prices waned, slowing down new purchases. With difficulty in finding low-price supplies, many traders sold below spot prices, and manufacturers had to reduce their factory prices to secure new orders, leading to a slight drop in market prices and an increased willingness downstream to restock.

Urea Delivery Area Prices:

Specifically, prices in the Northeast region rose to 2590-2680 RMB/ton. In North China, prices rose to 2410-2680 RMB/ton. In Northwest China, prices rose to 2610-2620 RMB/ton. In Southwest China, prices rose to 2550-2800 RMB/ton. In East China, prices rose to 2520-2600 RMB/ton. In Central China, small particle prices rose to 2550-2660 RMB/ton, and large particle prices rose to 2670-2730 RMB/ton. In South China, prices rose to 2680-2760 RMB/ton.

Futures Warehouse Receipt Distribution:
As of this Thursday, Zhengzhou Commodity Exchange urea futures had 2750 receipts, an increase of 2410 from last week.

Industry Chain Dynamics:

Rapid Recovery in Daily Production:

This week, domestic urea production was about 1.2318 million tons, a 2.36% decrease week-on-week, but a 15.84% increase year-on-year. The daily production was 176,000 tons, continuing a slight week-on-week decrease but still higher than the same period in 2022. The domestic urea industry's operating rate was about 79.89%, a 1.93% decrease week-on-week, but an 11.84% increase year-on-year.

Looking at the production process, coal-based urea production was about 921,400 tons, a decrease of 28,800 tons from last week and an increase of 157,800 tons year-on-year. The operating rate was about 78.73%, a 2.46% decrease from last week but a 12.69% increase year-on-year. Gas-based urea production was about 310,400 tons, a decrease of 1,000 tons from last week but an increase of 10,600 tons year-on-year. The operating rate was about 83.53%, a 0.27% decrease from last week but a 9.76% increase year-on-year.

Market Inventory:

This week, domestic large particle urea port inventory was 130,000 tons, a 20,000 ton decrease from last week and a 103,000 ton increase year-on-year. Small particle urea port inventory was 166,000 tons, an increase of 15,800 tons from last week but a decrease of 27,000 tons year-on-year. Enterprise inventory was about 341,400 tons, a 19,500 ton increase week-on-week, up 6.06%. Port inventory totaled 296,000 tons, a 13,800 ton increase week-on-week, up 4.89% and a 76,000 ton increase year-on-year, up 34.55%.

Compound Fertilizer Industry:

This week, the operating rate of domestic compound fertilizer factories improved. With the advancement of winter storage, the market atmosphere improved, and prices generally trended upward. On the enterprise side, driven by rising upstream costs, the recovery of manufacturing facilities was slow. However, with a low operating rate and low inventory, prices continued to rise, and low-price market supplies decreased. In terms of market, given the long winter storage period and the downstream fear of current high-priced fertilizers, the market's follow-up momentum was weak. However, winter storage in the Northeast and North China regions is progressing, with gradual follow-up demand. In summary, the low operating rate in the compound fertilizer industry is favorable for the market, and domestic compound fertilizer prices are expected to continue to rise slightly in the short term.

Melamine Industry:

This week, the melamine market was mostly influenced by cost factors, with stable to slightly downward price adjustments. On the factory side, manufacturers mainly focused on fulfilling pre-received orders. With support from pending orders, offer prices were adjusted at high levels, and some manufacturers had intentions to raise prices. The current mentality is mostly firm. In terms of supply, the capacity utilization rate is expected to increase next week as maintenance units gradually restart, increasing the supply. In terms of demand, the current market sentiment is mostly watchful, with downstream demand being sluggish and mainly following up on minimal necessities. In summary, with melamine enterprises mostly executing pre-received orders and flat downstream demand, the melamine market is expected to continue narrow fluctuations next week.

International Market Prices:

Internationally, the bulk small particle Chinese FOB price was 361-370 USD/ton, a decrease of 10-15 USD/ton. The Baltic FOB price was 310-330 USD/ton, with the low end decreasing by 8 USD/ton and the high end increasing by 2 USD/ton.

Large particle Chinese FOB price was 375-385 USD/ton, a decrease of 5 USD/ton. Iranian large particle FOB price was 345-346 USD/ton, with the low end increasing by 5 USD/ton and the high end decreasing by 4 USD/ton.

Market Outlook:

Supply:
Next week, Sichuan Meifeng, Xinjiang Tianyun, and Gansu Liuhua have maintenance plans, with daily production levels expected to continue high volatility.

Inventory:
This week, enterprise inventory increased slightly but remained at a low level. Most enterprises plan to accumulate inventory, and it is expected that inventory will continue to rise slightly next week.

Demand:
Market demand is mainly for storage. Given the current downward trend in prices, downstream will start restocking when prices are suitable.