The tight balance between supply and demand in the urea market will continue in the off-season of agricultural demand
2023/8/17
On the supply side, more than 2 million tons of production capacity will be launched before the end of the year, and the overall supply remains loose. The current daily output exceeds 170,000 tons. Regarding the supply in the second half of the year, considering that the profit of urea remains high and the factories are highly motivated to start operation, we believe that the supply will remain loose in the rest of the time, except that the maintenance of the gas head device at the end of the year may lead to a short-term decline in supply.
In terms of agricultural demand, the peak season for agricultural demand in the first half of the year has passed. In the first half of the year, the price went down all the way, the enthusiasm for downstream procurement was not high, and some summer agricultural demand moved backward, resulting in a significant increase in agricultural demand in June-July this year compared with previous years. However, from the perspective of macro policies, this year will still focus on "stabilizing corn and expanding soybeans", and it is expected that the total demand for urea will remain stable. The agricultural demand from January to July this year has been significantly higher than the agricultural demand in the same period last year. Therefore, the demand for urea directly applied in the second half of the year is expected to decrease significantly.
In terms of industrial demand and compound fertilizer, the demand is relatively consistent with the rhythm of agriculture, and the overall demand is relatively stable in the second half of the year. In terms of panels, the cumulative value of the completed real estate area this year has rebounded sharply year-on-year, which has a certain boost to the demand for panels. According to seasonality, the start of melamine and formaldehyde will also pick up seasonally in the fourth quarter. Therefore, in terms of industry in the second half of the year, we expect a demand for urea of more than 10 million tons.
In terms of export, we believe that this is one of the main reasons for the strengthening of urea since the second half of the year. As the international market stabilizes and rebounds, my country's urea export window opens. The FOB price of urea in the mainstream area of the international market ranges from US$400-420/ton, which is higher than the FOB price in China, triggering the market in domestic markets. It is estimated that the export volume of urea in July will exceed 500,000 tons. As for the export market in the second half of the year, we believe that under the background of loose domestic supply, monthly urea exports are expected to exceed 400,000 tons.
On the inventory side, the current factory inventory has maintained a historically low level, below 300,000 tons, and the port inventory has rebounded, but has not exceeded 300,000 tons. The overall domestic inventory level is low, resulting in a strong spot and a strong basis. According to our estimate of urea supply and demand in the second half of the year, although the overall supply is relatively loose, urea is not expected to be in significant surplus due to the weak storage demand and the return of export demand in the fourth quarter, and it is difficult to have a large accumulation.
Therefore, under the background of low inventory, the spot price may continue to be strong, and the basis difference will continue to remain high. From the strategic perspective, it is recommended to make an intertemporal bargain-hunting layout.
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