Why the Urea Market is Cooling Down

Text: Currently, the domestic urea market is showing a weak downward trend. The prices of urea in the market have risen and then fallen, with the average price for small particle urea in major regions across the country ranging between 2,360 to 2,480 yuan per ton. The daily production on the supply side continues to operate at a high level. However, due to the slowdown in urea reserves and changes in export orders, the market's trading activity has decreased. Downstream purchases have slowed down, and the enthusiasm of downstream agricultural dealers for stocking fertilizers has weakened, leading to a strong wait-and-see attitude. The overall trading atmosphere in the domestic urea market is lackluster.

Market Situation:

• Off-season demand and falling prices: The domestic agricultural urea market is currently in off-season demand, with dealers primarily stocking up for future needs. Due to the upcoming national storage inspection, some traders have a certain need to stock up. To prevent concentrated stocking by dealers from driving up urea prices, the government has postponed the storage inspection period. The next minor peak season for fertilizer use domestically will be around the Spring Festival, mainly concentrated in a few areas of Jiangsu and Anhui for the application of winter wheat fertilizer. Other agricultural markets will have little to no demand before the end of the year.
• Price trends: In the Northeast region, urea prices have fallen to 2,590 to 2,640 yuan per ton; in North China, to 2,370 to 2,650 yuan per ton; in Northwest China, prices are stable at 2,550 to 2,560 yuan per ton; in Southwest China, at 2,550 to 2,800 yuan per ton; in East China, they have fallen to 2,410 to 2,470 yuan per ton; in Central China, the prices for medium and small particle urea have fallen to 2,430 to 2,640 yuan per ton, and for large particle urea, to 2,560 to 2,700 yuan per ton; in South China, they have fallen to 2,650 to 2,700 yuan per ton.
• Supply: The operating rate of domestic urea factories is about 74.6%, with an average daily production of 176,000 tons. This is an increase of approximately 23,000 tons compared to the same period in 2022 when the daily production was 153,000 tons.

Industry Perspectives:

• Ensuring supply and stabilizing prices: Creating a favorable environment for stable market operation
• Yang Tongyu, Deputy General Manager of Henan Jinkai Group Yanhua Chemical Co., Ltd., noted that the previous national average ex-factory price of urea remained above 2,500 yuan per ton, which is unusually high for an off-season. The current ex-factory price of urea in the domestic market has decreased by 100 yuan per ton, dropping to around 2,360 yuan per ton, with expectations of further decline followed by stabilization. For winter storage enterprises, market risks are within a controllable range. As manufacturers, they also do not wish to see large fluctuations in urea prices.
• A nitrogen fertilizer product manager from a certain company mentioned that government departments and industry associations are paying more attention to domestic urea prices, exerting greater efforts than before. The bearish news has impacted both futures and spot markets, leading to a significant drop in urea prices. The future domestic urea market is expected to continue its downward trend, and the extent of the price reduction will depend on the start of off-season storage and market demand.
• Yan Sensheng, Fertilizer Research Director at Fertipedia, stated that the urea market has recently been weak and downward. This year, the assessment targets for reserve enterprises have been adjusted, likely delaying the purchasing rhythm. Additionally, the extension of export inspection times has made exports more orderly and controllable, easing domestic supply-demand conflicts.
• On November 17, twelve companies jointly advocated for ensuring supply and stabilizing prices, actively engaging in futures market hedging transactions, and registering warehouse receipts, committing to hold these receipts until delivery month to complete physical delivery. According to the Zhengzhou Commodity Exchange's warehouse receipt daily report, the number of urea futures warehouse receipts increased significantly last week to 6,526, reducing future delivery risks in the futures market and ensuring the supply of urea in January next year.

Future Market:

• Continued price decline and market stability: In the context of ensuring supply and stabilizing prices, maintaining the stability of the domestic urea market and helping storage enterprises manage risks within a controllable range are beneficial for the healthy and orderly development of the market. Currently, nitrogen fertilizer production is normal, inventories are sufficient, and exports are orderly and controllable, ensuring ample nitrogen fertilizer supply for this winter and next spring. In the short term, the domestic urea market is likely to continue weakening.