Urea: This Year, Urea Is Different; Price Declines May Require Patience

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Within a month after the Spring Festival, due to the first wave of green fertilizer demand, peak season for high-nitrogen fertilizers, and increased industrial demand, the domestic urea market showed a rising trend. It is expected that around mid-March, based on the fertilizer application timing for green fertilizers, the market will weaken and turn downward as agriculture enters a temporary lull. There is a greater than 50% chance this has occurred in previous years. So this year, with mid-March already here, will the urea market, which has been at the guiding price level, still see any softening?

First-Class Agricultural Demand Weakening

Referring to the guiding price level, the price cap will remain unchanged for this month and the next three months. The demand in the upcoming season is unlikely to be attracted by price levels alone, so currently, we are waiting for the green fertilizer market to conclude. Looking at the price trends from March to April over the past ten years, six years saw significant declines, with drops ranging from tens to over 200 Yuan; the duration of the decline was about half a month to a month. The earliest decline started around March 12, and the latest around March 26. Outside of these six years, declines may not occur until after April. Based on seasonal timing, we can only wait for now.

Second-Class: Middle East Conflict Outlook

The urea market remains firm, supported not only by fundamental factors but also by strong sentiment. On February 28, the Israel-Palestine conflict erupted. Initially, the market fluctuated within a range for about a week, but as the conflict developed beyond expectations, prices once hit the daily limit, then continued to fluctuate at high levels. Although limited price caps affect spot prices, the conflict has driven energy prices higher, impacted the global supply-demand landscape, and boosted prices of bulk commodities, which in turn lifted urea futures. Therefore, before sentiment cools significantly, spot prices may only undergo minor corrections, likely less than expected. We can only wait for further developments.

Third-Class: Supply Capacity Increase

Currently, urea daily production is at a historical high. However, short-term new highs are unlikely, and supply may remain stable or decrease due to planned maintenance or increased faults. The capacity increase depends on the release of new production capacity in the first half of the year, including 1 million tons at Yingcheng Xindu, 500,000 tons at Xinjiang Aofu (melamine), and 800,000 tons at Henan Xinlianxin. Currently, Yingcheng Xindu has about 50% of its capacity operational, Henan Xinlianxin is expected to start around May, and Aofu’s schedule is uncertain. We can only continue to wait.

In summary, without clear developments in the conflict, we can only wait for the agricultural season to temporarily weaken. Based on previous years’ timing, we will observe the agricultural market activity before next week or the end of the month to preliminarily estimate the potential shift in urea prices. Subsequently, we will evaluate demand for the next season based on inventory changes over several weeks, while remaining attentive to sentiment shifts that could influence market momentum and price fluctuations.

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Editor: Li Tiemin