Loose domestic supply and demand caused the price of urea to fall rapidly to a reasonable level
2023/8/4
Affected by the sharp rise in international urea prices, the domestic market has good expectations for urea exports, and the spot price of urea has risen sharply. On July 27, the mainstream price of small granular urea in Shandong reached 2,610 yuan/ton, and the mainstream price of small granular urea in Hebei Reached 2650 yuan / ton, and the 2309 contract of the main urea futures contract also reached a high of 2419 yuan / ton on the same day. Under the background of gradually light domestic demand, such a high price of urea obviously exceeded market expectations. Since July 30, the price of urea in some domestic markets has begun to pull back. The author believes that the main driving factor for the sharp increase in urea prices this time is the international market, and it is obviously difficult to support such a high price only by supply and demand in the domestic market.
International urea price trend is strong
In the past two months, the price of urea in some international regions has risen by more than US$150/ton. In terms of granularity, since the demand for large granular urea in the international market is relatively more concentrated, the price of large granular urea has risen even more. Driven by the price of large granular urea, the price of small granular urea also rose sharply, but the overall increase was relatively moderate. The price of small granular urea in the Arabian Gulf rose from USD 290/ton in early June to USD 370/ton, and the FOB price of small granular urea in the Baltic Sea From US$250/ton in early June to US$352/ton, the increase of small granular urea was 80-102 US$/ton, which was significantly smaller than that of large granular urea. In addition, three urea producers in Egypt have recently been asked to stop providing urea exports due to export license issues. The release of the printed label plays a vital role in pushing up the international urea price. The new round of bidding for granular urea with variable size released by India’s IPL was closed on August 9. Therefore, before the specific price and bidding volume of the printed label are announced, There is still a lot of room for speculation in the international market.
The domestic supply is more abundant
Driven by the sharp rise in urea prices in the international market, domestic urea prices have also continued to rise. However, from the perspective of domestic supply and demand, the support for the continuous rise in urea prices is obviously insufficient. Although the price of coal has risen in the early stage, the overall price is still within the controllable range, and the coal price has begun to fall recently. The cost of urea for the coal-water slurry process is about 1,600 yuan/ton, and the cost of urea for the fixed-bed process is also low. Controlled at around 2,000 yuan/ton, the profit of the urea industry is relatively considerable. The profit of the fixed bed process enterprise with the worst profit is 550 yuan/ton, and the profit of coal-water slurry gasification is as high as 900 yuan/ton. In the case of such high profits, urea enterprises are highly motivated to produce. Data show that since the beginning of this year, the daily output of urea companies has basically remained at a historically high level in the same period. As of July 28, the national daily output of urea was 171,000 tons, a substantial increase of 23,000 tons year-on-year. Affected by the state's policy on guaranteeing the supply of chemical fertilizers, the impact of passive production reduction by urea enterprises is relatively small. Therefore, driven by high profits, urea production remains high in the short term.
From the demand side, the domestic agricultural urea market demand is gradually weakening. Summer corn topdressing in Henan, Anhui, Shandong and other regions has gradually come to an end. It is expected that the domestic summer corn topdressing will be completely completed by the end of July or early August. For wheat fertilizer, the domestic agricultural market is about to usher in a gap period. Although the operating rate of compound fertilizer enterprises has increased recently, it is still at a low level in the same period of history as a whole, and the increase in demand for urea is relatively limited. The operating rate of melamine enterprises also continued to be low, and the downturn in the real estate industry caused the operating rate of rubber sheet factories to decline sharply. As of July 28, the operating rate of melamine enterprises across the country was 65.17%. Although the current policy is expected to be loose, the market expects that the policy may be relatively moderate. Even if the policy is promulgated later, the stimulus to the melamine industry will be relatively limited. It is difficult to have a large demand for urea in the short term. increase. On the whole, it is difficult to rely on domestic demand alone to support the continuous rise of urea prices. In the later stage, we will mainly focus on the international market conditions and the final price of the printed label.
Based on the above analysis, we believe that the main driver of the current domestic urea market is the international market. Before the announcement of the bidding results in India, the current price of urea may still remain firm. After rising to more than 2,400 yuan/ton, it will be relatively weak upwards, and it will start to fluctuate around 2,300 yuan/ton. In the later stage, we need to pay attention to the results of label printing. The price of label printing and the final transaction volume will become the direction of the future trend of the international and domestic urea market. Once the bidding results fail to meet expectations, the loose domestic supply and demand pattern will cause the price of urea to quickly fall to a reasonable level.
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