Urea supply and demand remain relatively loose in the short term, and the price continues to decline due to weakness
2023/10/12
Of course, it is also important to note that there is still uncertainty in agricultural demand, and companies in the Northeast region have not yet entered the market in the off-season. However, there is still significant uncertainty in the mid-term price trend due to subsequent environmental inspections on the supply side, limited production of urea at the end of the fourth quarter, and seasonal rebound in the start of compound fertilizer at the end of the year. At present, although the weakness of the futures price has not changed, the basis is at a high level. After the decline of the futures price slows down, it is recommended that demand enterprises can tentatively establish buying protection positions after the futures price stops falling.
Futures
The main contract price of urea continued to operate weakly, with the main contract opening at 2056 yuan/ton. After the opening, there was a tentative rebound of 2078 yuan/ton, but the unexpired price did not reverse the weakness. The futures price continued to fluctuate and decline, with the lowest price dropping to 2015 yuan/ton. The end of the day was flat, leading to a slight rebound in the futures price, closing at 2037 yuan/ton, a decrease of 1.74%. The trading volume decreased month on month, while the holdings slightly increased. From the perspective of the main seats, the top 20 seats showed a slight increase in both short and long positions, with a relatively limited overall growth rate; In the top five positions, CITIC Construction Investment reduced its holdings by 2342 positions, while Guotai Jun'an, Dongzheng Futures, and Galaxy Futures increased by 1762 positions, 2321 positions, and 1034 positions, respectively. Among the short positions, CITIC Construction Investment reduced its holdings by 1888 positions and Yong'an Futures increased its holdings by 2076 positions.
On the spot side
Due to the weakening of futures prices and sluggish market sentiment, urea supply is far higher than the same period in previous years, while demand is cautious. Industry is mainly focused on just demand procurement, while agricultural distributors are more wait-and-see. Composite fertilizer factory procurement is weakened, supply and demand are relaxed, and urea prices continue to be weak. Some factories in Shandong have fallen below 2300 yuan/ton in transaction prices. Today, urea factory prices in Shandong, Hebei, and Henan mostly range from 2280 to 2360 yuan/ton. However, it should also be noted that some merchants have started to prepare fertilizer slightly in low-priced areas and are paying attention to the procurement work of light storage in the Northeast region.
Fundamental tracking
In terms of basis: The closing price of the urea main contract slightly decreased, and the current price continued to be weak. The urea basis slightly narrowed, with the Shandong region as the benchmark. The January contract basis of the urea main contract was 313 yuan/ton, and the basis is still at a high level in the same period. In the subsequent process of basis regression demand, the futures price may be more resilient compared to the current price or performance. Given the interweaving of bullish and bearish factors in the fourth quarter, for enterprises with medium to long-term demand for short reserve procurement, they can look for buying protection opportunities after the futures market stops falling.
Supply data: As of October 11, 2023, the daily production of urea in China was 178000 tons, an increase of 10000 tons compared to the previous month, a year-on-year increase of 31000 tons, and an operating rate of 75.3%. The completion of maintenance in Changshan, Jilin, led to a slight recovery in Nissan's scale. In October, new production capacity was put into operation in Haoyuan, Anhui, and Hengsheng, Hualu. It is expected that the supply rate will remain relatively loose.
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