Last week, urea futures fell below the previous shock range and the market continued to decline. As of September 12, the urea 2601 contract closed at 1663 yuan/ton, down 64 yuan/ton or 3.67% from the end of August. The main reason is the weakness of the demand side. On the one hand, domestic agricultural demand in mid-to-early September was in the off-season of consumption, and there was insufficient enthusiasm for downstream procurement. On the other hand, the Indian bidding situation, which supported the market in the early stage, fell short of expectations, curbing the market’s optimism about exports. In addition, the compound fertilizer factory had limited production before and after the military parade, and it was more cautious about purchasing urea.
The spot market was also weak. On September 12, the mainstream price of Henan small pellet urea market was 1650 yuan/ton, down 70 yuan/ton from the end of August. The mainstream price of Shandong small pellet urea market was 1660 yuan/ton, down 60 yuan/ton from the end of August./ton, the mainstream price of Jiangsu small pellet urea market was 1650 yuan/ton, down 80 yuan/ton from the end of August. The mainstream price of Anhui small pellet urea was 1650 yuan/ton, down 90 yuan/ton from the end of August. The mainstream price of small pellet urea in Hebei was 1670 yuan/ton, down 60 yuan/ton from the end of August. The ex-factory price of small pellet urea in Guanzhong was 1520 yuan/ton, down 60 yuan/ton from the end of August. Downstream purchasing sentiment was cautious, and the factory’s new orders were not good, and the shipment speed slowed down.
International urea prices fell. The FOB price of small pellet urea in the Middle East was US$430/ton, down US$55/ton from the end of August, and the CFR price of small pellet urea in Brazil was 422.US$5/ton, down US$25/ton from the end of August. The FOB price of Uzhnig Port in Ukraine was US$399/ton, down US$35/ton from the end of August. The FOB price of small pellet urea in China was US$423.5/ton, down US$11.5/ton from the end of August. The export of domestic sources led to an increase in international supply, while demand in the northern hemisphere was off-season. At the same time, the Indian NFL’s import tender on September 2, the lowest price received fell significantly compared with the previous period. It has brought downward pressure on international urea prices.
Recently, the number of urea units being overhauled in China has increased, and the utilization rate of production capacity has dropped. However, due to the increase in production capacity, although the average daily output has dropped to 180,000 – 190,000 tons/day, it is still relatively high compared with the same period in previous years, and the pressure on the supply side has eased slightly but limited. According to data, in the week of September 12, the domestic urea plant capacity utilization rate was 79.34%, down 3.05 percentage points from the end of August and 2.43 percentage points year-on-year. The average daily output of urea was 185,600 tons, a decrease of 714,200 tons from the end of August., a year-on-year increase of 3,300 tons.
In terms of processes, the capacity utilization rate of the coal-to-urea unit was 81.47%, down 3.63 percentage points from the end of August and 1.85 percentage points year-on-year. The average daily output was 146,100 tons, a decrease of 651,300 tons from the end of August, and a year-on-year increase of 4,600 tons; The capacity utilization rate of the natural gas-to-urea unit was 72.34%, down 1.15 percentage points from the end of August and 4.49 percentage points year-on-year. The average daily output was 39,500 tons, a decrease of 62,900 tons from the end of August and a year-on-year decrease of 1,300 tons.Most of the equipment that changed during the statistical period were coal-head equipment. In early September, some urea plants in Henan and Shanxi were started for maintenance, and the supply was reduced. At present, some units have been restored. After mid-term, pre-maintenance equipment such as Henan Xinlianxin and Shanxi Jinfeng will also be restored. It is expected that the daily output will rise to more than 190,000 tons, and the overall supply will still be sufficient.
3. Demand side: Agricultural demand is short of window, and the printing label falls short of expectations
Agricultural demand is advancing slowly. There is a phased window for agricultural demand in mid-to-early September. The main demand is autumn fertilizer preparation. However, downstream dealers are cautious in purchasing and only a small amount of fertilizer preparation on dips. At the same time, as urea prices continue to fall, farmers and distributors have a mentality of “buying up but not buying down” and have a strong wait-and-see attitude. In the next stage, agricultural demand will mainly be base fertilizer for autumn sowing wheat in various regions from late September to early mid-October. However, at present, agricultural demand has started slowly and it is difficult to form strong support for the market in the short term.
In terms of industrial demand, after the military parade, the pre-stop and load reduction devices were restored one after another, and the operating rate of the compound fertilizer factory rebounded. However, compared with the same period in previous years, it was still at a low level and did not increase. At the same time, the inventory of the compound fertilizer factory enterprises was at a high level during the same period. The reasons are also sluggish terminal demand, insufficient enthusiasm for compound fertilizer factories to produce, and purchasing raw materials on demand. In the next stage, we need to pay attention to the recovery of downstream demand for autumn planting. In the week of September 12, the capacity utilization rate of compound fertilizer units was 37.82%, down 1.4 percentage points from the end of August and down 0.6 percentage points year-on-year; the inventory of compound fertilizer manufacturers was 826,200 tons, a decrease of 41,000 tons from the end of August and a year-on-year increase of 37,700 tons.
The utilization rate of melamine plant capacity was 55.38%, down 3.12 percentage points from the end of August and 12.07 percentage points year-on-year; the output was 27,500 tons, a decrease of 0.500 tons from the end of August and a year-on-year decrease of 0.41 million tons. The utilization rate of melamine plant capacity was relatively low during the same period, but the overall supply was still relatively abundant. The demand for terminal factories such as plates was affected by factors such as the downturn in the real estate market, and the growth was weak and the support for the urea market was limited.
On September 2, the Indian NFL held a urea import tender, with a planned tender volume of 1 million tons on the east and west coasts, totaling 2 million tons. The tender attracted a total of 29 suppliers to participate in the bidding, and a total of about 5.66 million tons of goods were invested. The final bid was about 2.03 million tons, and the winning bid price was about US$460/ton CFR, which was a significant drop of about US$70/ton compared with the US$530 – 532/ton CFR bid in India in early August, creating the largest drop in the recent printing price. At the same time, the bidding volume far exceeds the bidding volume, indicating that the current international supply is abundant, so there is limited support for domestic urea prices. After September, domestic autumn fertilizer use and fresh storage will be started one after another, and the export window may be gradually closed.
4. Inventory: Production companies continue to accumulate stocks
In terms of inventory, Longzhong calculated that the in-plant inventory of urea production enterprises in the week of September 12 was 1.1327 million tons, an increase of 46,900 tons from the end of August and a year-on-year increase of 382,800 tons. For five consecutive weeks, the inventory of the warehouse was 549,400 tons, a decrease of 50,600 tons from the end of August, a year-on-year increase of 336,400 tons. Recently, the daily output of urea has declined. At the same time, some manufacturers are supported by export orders, and the supply of goods has concentrated in the port. However, it is still difficult to change the current situation of manufacturers accumulating warehouses. Some manufacturers have reduced prices to collect orders, but the effect is limited. Terminal demand is still weak, and manufacturers are under great pressure to ship.
In terms of cost, as the price of urea fell, the profits of various methods shrank or the losses expanded. According to Longzhong Information, the production profit of the coal-water slurry gasification method unit was 166 yuan/ton, a decrease of 10 yuan/ton month-on-month. The production profit of the fixed bed unit was-217 yuan/ton, a decrease of 10 yuan/ton month-on-month, and the production profit of the natural gas unit was-185 yuan/ton, which was flat month-on-month.
Domestic coal prices stopped falling last week, and some coal prices rebounded. The atmosphere in the port market has improved, and the demand for replenishment before the holiday has emerged. Traders ‘shipping costs have been inverted, and there is a strong willingness to bid. Downstream inquiries have increased. However, price reduction is common. The power plant’s own inventory is relatively safe, and there is no large-scale replenishment. Willingness, the actual transaction volume at the port is limited, coal prices at the pit are mainly stable, and most coal mines maintain normal production and sales. Fundamentally speaking, coal mines that reduced production and restricted production in the early period have gradually resumed, while the peak season of “peak summer” has ended, the daily consumption of power plants has dropped seasonally. Currently, inventories are still above the safety line. Procurement demand is limited. There is not much pressure on port inventories in the near future. Moreover, some downstream stocks are replenished based on pre-double-section stocking and autumn inspection of the Daqin line. However, terminal demand is difficult to increase, and coal prices lack motivation to continue to rise.
6. Summary: Strong supply, weak demand, limited improvement, and urea prices are under pressure
Recently, urea prices have continued to fall. On the one hand, there is a short window for agricultural demand, and domestic demand is weak. At the same time, falling urea prices have curbed downstream procurement enthusiasm. On the other hand, although domestic exports have been liberalized, participation in the marking and the price of the marking were not as good as previously expected, and speculation weakened. From the perspective of supply and demand, the daily output of urea has dropped somewhat recently, and the supply pressure has eased slightly but is at a high level in the same period. In the middle and late September, preliminary maintenance equipment has been restarted one after another, and Nissan may return to a high level. On the demand side, agricultural demand is advancing slowly, and downstream procurement enthusiasm is average. The main growth points in the market outlook are the release of phased procurement demand brought by wheat base fertilizer in autumn and the off-season reserves of reserve companies; the capacity utilization rate of compound fertilizer units may continue to rise, but if downstream procurement enthusiasm is insufficient and the inventory of compound fertilizer plants cannot be effectively removed, it will continue to inhibit manufacturers ‘enthusiasm for starting work and willingness to purchase raw materials; there are many melamine recovery devices, but terminal demand is still weak; Exports are lower than expected, and as the export window closes, export side disturbances will also weaken. Overall, urea supply and demand performance is relatively loose, and prices are still under pressure. However, the current price is low, and there is support from autumn wheat base fertilizer and fresh storage demand in the future, so there may be limited room for further downside. For reference only.
Zhang Chen is a researcher in coal chemical industry at Chang ‘an Futures. He has systematic theoretical study experience in coal and related industries. Since entering the futures market, he has been mainly responsible for the researchof thermal coaland coal chemical-related varieties. He is good at analyzing market trends from policy orientation and fundamentals., has rich professional knowledge and strong logical analysis capabilities.
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