Urea Weekly: No Driver in the Interim Gap, Urea Trapped in a Negative-Feedback Spiral (20261016)

1. Urea Market Overview

1.1 FDD Price Index

This week the domestic urea market maintained an overall weak downward trend. After the Indian tender news fell short of expectations, the market temporarily lacked a new speculative theme, and during the interim gap it traded mainly on the seasonally bearish logic. Fundamentals left supply ample, new spot orders were thin, and sentiment was weak; some producers that fell short of collection targets modestly cut quotes, though as prices declined, transactions in some regions showed signs of improvement on value-for-money grounds. On the supply side, although the industry operating rate edged lower, the overall level remained high and market supply was ample. On inventories, given the interim demand gap and weakening sentiment, the circulation segment had little willingness to stock up, and producer inventories began to accumulate sharply. On demand, agricultural rigid demand gradually faded, operating rates at industrial downstreams such as compound fertilizer and board processing stayed low, procurement was mostly buy-as-you-go, wait-and-see sentiment was thick, and willingness to restock in bulk was insufficient. On exports, the policy of actively issuing quotas provided some floor for the market but has not yet formed a trend-driving force; after this round of Indian tender results landed, the market reaction was muted and support for domestic spot was limited. Overall, costs provide some bottom support, but terminal demand has not yet provided effective traction, wait-and-see sentiment on the floor is heavy, and the urea market will find it hard to break out of its range-bound pattern in the short term. Going forward, focus on the pace at which export orders are fulfilled and on the start-up rhythm of winter-storage stocking.

According to FDD data estimates: as of Friday this week, the average price index for domestic urea small granular was 1,767.73, down 0.91 from last week, a week-on-week change of -0.05%.

In the first half of the week, the urea market was mainly weak. After the National Day holiday, with the second Indian tender results falling short of expectations, market sentiment kept weakening; supply-side daily output held at a high of 210,000 tonnes, exerting strong supply pressure. On demand, agricultural restocking support was insufficient, compound fertilizer operating rates were below the usual level for the same period, and procurement was mainly rigid-demand, use-as-you-go; industrially, melamine and board sectors maintained rigid-demand follow-through with no incremental traction. During the gap after all bullish factors were exhausted, overall sentiment was poor and the negative-feedback logic weighed heavily.

In the second half of the week, the urea market remained weak but the pace of decline slowed. As prices fell earlier, value-for-money advantages emerged in some regions and trading sentiment showed some improvement, but overall it was still hard to generate a clear rebound driver, and the market ran range-bound at low levels for the time being. At the week's end, however, news circulated that binary fertilizer exports might be liberalized, urea futures rebounded slightly from lows, sentiment steadied somewhat, and the market is watching whether spot transactions improve over the weekend.

1.2 Delivery Region Quotes

Specifically, prices in the Northeast held stable at 1,790-1,810 yuan/t. Prices in East China fell to 1,700-1,730 yuan/t. In Central China, medium/small granular fell to 1,710-1,920 yuan/t, while large granular held stable at 2,020-2,050 yuan/t. Prices in North China fell to 1,570-1,800 yuan/t. Prices in South China fell to 1,780-1,840 yuan/t. Prices in Northwest China held stable at 1,860-1,910 yuan/t. Prices in Southwest China fell to 1,650-1,900 yuan/t.

Urea Small-Granular Market Quotes (yuan/t)

2. Industry Chain Dynamics

2.1 Daily Output

Output: this week, domestic urea output was about 1.5251 million tonnes, down 7,700 tonnes from last week, a week-on-week change of -0.50% and a year-on-year change of +15.49%; the weekly average daily output was 217,900 tonnes, down 1,100 tonnes from last week. Output edged lower during the week owing to individual maintenance units, but daily output remained above 210,000 tonnes, supply stayed high and volatile, and the market's ample supply picture persisted.

Operating rate: the domestic urea industry operating rate was about 89.77%, a week-on-week change of -0.85% and a year-on-year change of +11.74%; the industry operating rate edged lower during the week but remained above the year-earlier level.

By product type, large-granular urea output was about 319,000 tonnes, down 11,800 tonnes from last week, a week-on-week change of -3.57%; up 45,500 tonnes from a year earlier, a year-on-year change of +16.64%; the large-granular operating rate was about 90.42%, down 5.08% from last week and up 9.74% from a year earlier. Medium/small-granular urea output was about 1.2061 million tonnes, up 4,100 tonnes from last week, a week-on-week change of +0.34%; up 201,700 tonnes from a year earlier, a year-on-year change of +20.08%; the medium/small-granular operating rate was about 89.60%, up 0.23% from last week and up 12.26% from a year earlier.

By process, coal-based urea output was about 1.2352 million tonnes, down 8,200 tonnes from last week and up 215,500 tonnes from a year earlier; the operating rate was about 92.01%, down 1.12% from last week and up 8.36% from a year earlier. Gas-based urea output was about 289,900 tonnes, up 500 tonnes from last week and up 31,700 tonnes from a year earlier; the operating rate was about 81.34%, up 0.12% from last week and up 10.59% from a year earlier.

2.2 Plant Dynamics

China Urea Plant Maintenance Volume — Weekly Data

China Urea Sample Plants' Planned Maintenance — Weekly Data

2.3 Market Inventories

Producers: this week, producer inventory was about 1.6045 million tonnes, up 121,800 tonnes from last week, a week-on-week increase of 8.21%; up 160,600 tonnes from a year earlier, a year-on-year increase of 11.12%. The accumulation trend in domestic urea producer inventories worsened this week, mainly because demand is in an interim gap, industrial compound fertilizer is winding down and its ability to absorb material has weakened, traders are reluctant to build positions given limited demand, overall material circulation has slowed, most plants are under pressure on order collection, and the scale of producer inventory accumulation has widened.

Ports: total port inventory was 578,400 tonnes, up 35,500 tonnes from last week, a week-on-week change of +6.54%; up 62,400 tonnes from a year earlier, a year-on-year change of +12.09%. Port inventories fluctuated narrowly during the period, with both departures and arrivals. Because Indian tender prices fell short of expectations, the overall port-arrival pace slowed; combined with departures of cargo from some ports, overall port inventory mainly fluctuated slightly. The main changes were: large-granular cargo arrived at Tianjin and Yantai ports and small-granular cargo at Longkou, Tianjin and Huanghua ports, while large-granular cargo departed from Jinzhou, Qingdao, Lianyungang and Huanghua ports.

Large granular: this week, domestic large-granular urea port inventory was 402,900 tonnes, up 13,300 tonnes from last week, a week-on-week change of +3.41%; up 163,900 tonnes from a year earlier; large-granular urea port volumes rose slightly during the week and were above the year-earlier level.

Large granular: this week, domestic large-granular urea port inventory was 398,400 tonnes, down 4,500 tonnes from last week, a week-on-week change of -1.12%; up 160,400 tonnes from a year earlier; large-granular urea port volumes fell slightly during the week and were above the year-earlier level.

2.4 Compound Fertilizer Industry

This week the domestic compound fertilizer market remained in weak consolidation; autumn fertilizer has entered its closing stage, incremental demand is limited, on-floor bargaining is pronounced, and the overall trading pace has slowed.

As of Friday this week, the domestic 45%S price index was 3,298.33 and the 45%CL price index was 2,812.73.

On the cost side, on the raw material side, urea retreated and consolidated, MAP prices continued to fall, and potash weakened sharply, offering limited support to costs and sentiment. On the supply side, the compound fertilizer operating rate was 31.02% this week, a week-on-week change of -1.30%, and the industry operating rate edged lower during the week. Most producers focused on digesting previously pending orders and scheduled production as needed, adjusting operating rates flexibly; some enterprises accelerated inventory clearance and appropriately controlled new output, leaving overall market supply relatively ample. On the demand side, as autumn planting and fertilization in the north progressively landed, grassroots rigid demand gradually weakened; distributors in the circulation segment generally maintained a light-inventory approach, focusing on digesting existing stock, showed little enthusiasm for large-scale restocking, and room for negotiation on firm deals widened somewhat. Winter storage has not yet formally started, downstream wait-and-see sentiment is heavy, and no new demand relay has formed; meanwhile, overseas geopolitical tensions continue to disturb the market, and exports have not provided obvious incremental traction. Overall, during the gap between the close-out of autumn fertilizer and the yet-to-land winter-storage expectations, compound fertilizer prices are likely to consolidate in a range; going forward, focus on the trends of raw-material straight fertilizers, the remaining grassroots autumn-fertilizer shipment pace, and the implementation of winter-storage policy.

2.5 Melamine Industry

This week the domestic melamine market was mainly slightly weaker, with light on-floor trading and enterprises generally conceding price to move goods. On the cost side, upstream urea continued its downward trend, raw-material support weakened, and producer margins adjusted with raw material movements. On the supply side, the melamine operating rate was 58.95% this week, up 3.64% from last week. Industry units were in a mix of maintenance and restarts: some previously shut units gradually resumed production, raising expectations of material release, while a few enterprises remained shut for maintenance, partially offsetting the increment, so overall industry operating rates moved in a volatile range. On the demand side, follow-through from the domestic downstream board sector was limited, actual terminal consumption showed no obvious improvement, downstream plants mostly stuck to buy-as-you-go, willingness to restock in bulk was weak, and acceptance of high-priced material was poor. On exports, overseas inquiries remained at an ordinary level, geopolitical factors continued to disrupt the rhythm of international trade flows, the external market failed to provide strong traction, and export order increments were limited. Overall, caught between expectations of supply recovery and weak downstream demand, melamine prices are likely to consolidate in a range; going forward, continue to track upstream raw material trends, domestic downstream board operating rates, and follow-through on overseas orders.

2.6 International Market Quotes

China bulk small-granular FOB was US$335.01-350.01/t, with the high end raised by US$15/t and the low end cut by US$5/t; Black Sea small-granular port FOB was US$395.01-405.01/t, with the low end raised by US$20/t; Baltic small-granular port FOB was US$390.01-400.01/t, with the low end raised by US$20/t; Middle East small-granular port FOB was US$420.01-440.01/t, up US$5-10/t; Brazil small-granular CFR was US$440.01-460.01/t, up US$10-15/t; India CIF was US$352.01-356.01/t, flat versus last week.

Iran large-granular port FOB was US$330.01-351.01/t, up US$1-15/t from last week; Egypt (Europe) large-granular port FOB was US$465.01-527.01/t, up US$1-17/t. Brazil large-granular CFR was US$460.01-485.01/t, with the low end raised by US$5/t; Southeast Asia large-granular port CFR was US$455.01-480.01/t, up US$5/t; China large-granular port FOB was US$415.01-440.01/t, up US$5-10/t.

3. Outlook

Supply: industry units will generally maintain flexible production. Some previously maintained units are expected to restart, but seasonal load cuts are also possible; overall supply is expected to stay relatively high and price pressure remains strong.

Inventories: after demand weakened, plant-side inventories have already accumulated upward; some destocking may follow if low-priced stock-building occurs, but inventories in the social circulation segment remain under pressure; if downstream purchasing slows, material could again pile up, and absent a start-up in incremental demand, the accumulation trend is expected to persist for now.

Demand: direct agricultural application is gradually fading, downstream compound fertilizer enterprises are operating at a generally low rate, and raw material procurement remains buy-as-you-go; the pace and scale of export shipments will determine whether surplus capacity can be effectively absorbed, and watch whether the continued price decline can trigger large-scale bargain stock-building.