The domestic urea market remains under pressure, with ex-factory prices currently ranging between RMB 1,520 and 1,650 per ton. The previous low was around 1,650 yuan, but now the lowest price has dropped to 1,500 yuan. Despite this decline, I don't think the outlook for urea is as bleak as it might seem at first glance.
There are two main reasons behind this downward trend. First, urea exports have not met expectations. Many had hoped that the reduction in export tariffs to 15% in November and December would boost sales, but instead, international prices fell sharply, and demand remained weak. The FOB price of urea in the Baltic Sea has dropped to around $200 per ton, while China's export FOB price has fallen to about $230, down nearly $20 from October’s $248. After accounting for tariffs and shipping costs, this price is equivalent to just RMB 1,520 per ton domestically. This has led many companies to stop exporting, creating a supply glut and pushing prices further down. As dealers hold back on buying, manufacturers continue to lower prices in hopes of selling, creating a cycle of falling prices.
Second, distributors are taking a cautious approach toward winter stockpiling. In addition to weak export performance, they are concerned about three key factors: policy uncertainty, unclear farmer demand for next year, and fears of overcapacity. Some dealers are worried that if the government imposes price controls, their profit margins could be squeezed. Looking back, in 2005, rising fertilizer prices reduced farmers’ income, leading to a drop in planting areas and weaker demand for fertilizers. This experience still lingers in the minds of many dealers.
Moreover, new urea plants are coming online, increasing production capacity by about 5 million tons next year. With continued strict export restrictions, exports are expected to be even lower than in 2005. This could worsen the supply-demand imbalance in the domestic market. Given these factors, dealers remain cautious about the future and are hesitant to stock up for the winter.
However, I believe the current price decline shouldn’t be overplayed. About 70% of China’s urea consumption occurs between January and July, especially in March to July. New production capacity will mainly come online in the second half of next year, so there won’t be an oversupply during the peak season. In fact, there may even be a shortage. Even if supply and demand become more imbalanced later, the market will self-correct. If prices fall too much, producers may cut output or shut down, reducing supply and stabilizing prices.
In short, while the market is under pressure, it’s unlikely to spiral out of control. The chemical fertilizer industry is moving toward a more market-driven model, and new policies will likely balance the interests of all stakeholders. Demand for fertilizers is expected to remain stable next year.
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