[Domestic News]Urea: Supply-demand resonance stabilizes prices in March, balance disrupted and weakness shows in April.

Introduction: In March, the domestic urea market continued the range-bound trend of the first two months of 2023. The daily production of urea plants reached a new high in nearly a year. However, due to the downstream spring farming and agricultural fertilization needs, as well as the continuous procurement from composite fertilizer companies, which had low inventory levels, the price of urea fluctuated slightly. With the continuous decline in the operating load of composite fertilizer companies and the resumption of maintenance of urea plants at the end of the month, the weak balance between supply and demand was broken. It is expected that the price of urea will first decline and then rebound in April, with an overall downward trend.

In 2023, the urea market in China experienced fluctuations in price range. As of March 27th, 2023, the highest price reached 2,726 yuan/ton on February 4th, while the lowest price was 2,668 yuan/ton on February 15th. In March, the domestic urea market showed small and short-term changes, with a price difference of 24 yuan/ton between the highest and lowest prices. The trend changed four times during the month. In the first ten days, the production cycle of compound fertilizer enterprises helped to alleviate the pressure of urea supply increase and supported a slight price increase. In the middle and lower ten days, the impact of the reduction in the operating rate of compound fertilizer production capacity caused the price to fluctuate downward.

demand side: agricultural traditional peak season compound fertilizer continued just need to follow up industrial and agricultural demand to support prices.

agriculture, with the warming of temperature, spring is approaching the earth, and March is in the traditional peak season of urea in China. The top dressing of wheat in the green period, superimposing spring ploughing and preparing fertilizer, and gradually expanding fertilizer from south to north. In particular, this year's lunar leap February affected, local agricultural demand activities were postponed to March, thus resulting in a better follow-up of agricultural demand in March than in the same period last year, becoming the main factor supporting urea prices.

industry, in March, Hefei enterprises are in the high nitrogen fertilizer production cycle, compound fertilizer production capacity operation rate first up and then down. In early March, China's compound fertilizer production capacity was 57.48 percent, reaching a near-two-year high, which was good for a narrow upward trend in urea prices in early March. And downstream on-demand pick-up, take the lead in digesting enterprise inventory, high production capacity operation rate caused by high finished goods inventory, production reduction increased. As of March 23, China's compound fertilizer production capacity operation rate fell to 42.74. However, after the reduction of compound fertilizer production, urea prices did not weaken downward, mainly for two reasons: first, after experiencing a large change in urea market prices in 2022, compound fertilizer enterprises were cautious in purchasing in 2023, and raw material urea stocks remained relatively low. Zhuochuang Information Data shows that at the end of February, the raw material inventory of compound fertilizer sample enterprises was 46000 tons, a new low in the past two years. The low inventory led to the continuous promotion of compound fertilizer enterprises' just-needed replenishment activities, forming a relative balance between short-term supply and demand. Second, urea is the main raw material for high-nitrogen compound fertilizer production, and the price of urea and compound fertilizer is highly correlated.

Taking the above factors into account, the traditional agricultural peak season serves as the fundamental demand, and the short-term demand for compound fertilizers continues to follow, supporting urea prices.

On the supply side, the daily production of urea has dropped from its high level, making it difficult for prices to continue to rise.

In March, the operating rate of China's urea plants increased and then fell. As of March 27th, the average operating rate of China's urea plants in March was 73.44%, an increase of 1.80 percentage points compared to the previous month. As shown in Figure 3, there is a significant difference in operating rates compared to the same period last year due to the timing of the Spring Festival holiday.

In 2023, the Spring Festival was in January, and the resumption of urea production after the holiday was ahead of schedule. The operating rate continued to increase in February, and in early March, with the successive resumption of operation of the southwest and northwest units, the operating rate of China's urea plants reached a new high of 76.02% for the year. In the middle and late of the month, the short-term shutdowns and production reductions in North China and Northwest China increased, and the operating rate fell to 68.58% on March 27th. Last March was in the stage of stockpiling after the Spring Festival. Urea manufacturers had high enthusiasm and cost-effectiveness, and the operating rate fluctuated above 70%.

The trend of changes in operating load of Chinese urea plants in March was basically consistent with that of compound fertilizer production capacity, as shown in Figures 2 and 3. Both reached the annual peak in the first ten days and began to decline in the middle and lower ten days. In early March, the daily production of urea in China climbed to 170,500 tons. Combined with the release of commercial reserves in some regions, the domestic urea market has sufficient supply, which has eased the pressure of increased demand from high operating rates of compound fertilizer and traditional agricultural seasons, ensuring the stability of urea market supply and prices. After the operating rate of downstream compound fertilizer enterprises declined, the high operating load phase of the urea market also ended with the reduction of production in Xinjiang and Shanxi plants. In the middle and lower ten days of March, the market entered the phase of urea and compound fertilizer operating in resonance, with weak balance between supply and demand supporting price fluctuations within a range of 22 yuan/ton.

Outlook for the later market:

In April, the situation of oversupply will be highlighted, and urea prices are expected to first decline and then rise.

On the demand side, as of March 23, the weekly inventory of Chinese sample compound fertilizer was 820,000 tons, a new high in nearly two years, up 36.67% from the first week of March. High inventory of finished products has suppressed the enthusiasm of compound fertilizer enterprises to operate actively. The operating rate of production capacity in early April will continue the downward trend of late March, coupled with the arrival of a new round of reserve release cycle, the overall stocking enthusiasm will decrease, and the stocking cycle will be prolonged. However, compound fertilizer enterprises still maintain low inventory of raw materials, and the pace of stocking tends to be "short and fast". It is expected that once the pressure of finished product inventory of compound fertilizer enterprises is relieved in the latter half of April, the operating rate of production capacity and demand will also catch up quickly.

On the supply side, Sichuan and Xinjiang plants have resumed production after maintenance, and the operating load of urea plants in early March has rebounded. It is expected that the average daily production will increase by 0.25% to 163,400 tons in April. At the same time, the prices of coal and natural gas weakened in the first quarter, and urea manufacturers' profits have recovered, with weak cost support and increased room for price adjustments by urea manufacturers. The adjustment range in April may expand to 50 yuan/ton.

In other aspects, international prices are still at a low level, with domestic and international prices inverted, and domestic manufacturers have a very low enthusiasm for gathering at ports.

Urea market prices in April are expected to decline first and then rise. In early April, the production of urea plants will recover, and the expected continuous decline in the operating rate of compound fertilizer production capacity will break the weak balance between supply and demand in March, which will put pressure on urea prices. As the finished product inventory of compound fertilizer enterprises is digested in the middle and lower ten days of April and the operating situation is restored, the planned maintenance of urea plants in Shandong and Xinjiang begins, and the situation of oversupply will be alleviated, leading to a rise in urea prices in late April.

Source: Zhuo Chuang informationClick to view