The supply is high, and the domestic urea market fluctuated and fell in the first half of 2023. In the first quarter, urea prices first rose and then fell, fluctuating around 2770 yuan/ton with an amplitude of 50-70 yuan/ton. Urea prices continued to decline in the second quarter. As of June 30th, the price of urea in the first half of the year decreased by a total of 434.25 yuan/ton, a decrease of 16.10%. The highest point in the first half of the year was 2841.88 yuan/ton in early March, and the lowest point was 2210 yuan/ton in mid June. The maximum decline in the first half of the year was 22.23%.
Overview of the market situation in the first half of the year
First quarter: first up and then down. After New Year’s Day, agriculture began to prepare fertilizers, and downstream warehouses were appropriately replenished. Demand was supported, and the urea market began to warm up. In early February, daily urea production remained at a high level, while coal prices fell, resulting in insufficient cost support. After the holiday, downstream construction started slowly, downstream demand was sluggish, and urea prices fell slightly. In late February, as spring plowing approaches and agricultural demand is strong, urea prices are facing a new round of increase. In mid March, spring plowing and fertilizer supplementation decreased, and the downstream compound fertilizer market was average, leading to a weakening of downstream demand. At the same time, international urea prices continue to hang upside down, and urea prices have begun a downward journey.
Second quarter. Falling and falling endlessly. In April and May, urea entered the off-season of agricultural demand, and the construction of sheet metal factories continued to be sluggish. The combined cost support was insufficient, and urea enterprises accumulated a serious inventory. The market had a strong bearish atmosphere, and urea prices continued to decline. In early June, agricultural demand was concentrated and replenished, coupled with India’s release of a new round of bidding, market sentiment improved, and urea prices surged. However, due to high inventory levels in enterprises, the urea market is gradually cooling down under supply and demand pressure.
Industrial chain
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From the price rise and fall chart of the urea industry chain in the first half of the year, it can be seen that both the upstream and downstream markets of urea have experienced significant declines, resulting in multiple negative effects and an overall downward trend in the urea industry chain.
Cost side
In the first half of 2023, the price trend of Anthracite in Yangquan will rise slightly at first and then fall all the way. The price has dropped from 1870 yuan/ton at the beginning of the year to 920 yuan/ton at the end of June, a decrease of 950 yuan/ton, a drop of up to 50.8%. The price of Anthracite has halved, the cost has collapsed, and the support is seriously insufficient. The price of Anthracite has basically dropped to the level in the first half of 21 years.
From the trend chart of liquefied natural gas, it can be seen that natural gas prices have fluctuated and fallen widely. The price has dropped from 6176 yuan/ton to 4296 yuan/ton, a decrease of 30.44%. The highest point of prices in the first half of the year was in mid January, with a price of 6510 yuan/ton. The lowest point was in early June, with a price of 3520 yuan/ton. The maximum decline in the first half of the year was 45.93%, which was basically a half decrease. At the end of June, prices fell by 27.01% year-on-year. The price is basically the same as in 2021.
From the price trend chart of liquid ammonia, it can be seen that the price of liquid ammonia continued to decline in the first half of the year. The price has dropped from 4673 yuan/ton to 2700 yuan/ton, a decrease of about 42%.
In China, the preparation process of urea can be divided into fixed bed process, airflow bed process, and natural gas process. The fixed bed process accounts for about 40%, the airflow bed process accounts for about 35%, and the natural gas process accounts for about 25%. Based on the prices of coal and natural gas at the end of May, the urea cost is fixed bed process>airflow bed process>natural gas process. International urea plants mainly rely on natural gas. However, with the outbreak of the Energy crisis, the cost of urea from gas abroad is higher than that from coal at home.
Demand side
The downstream demand for urea is mainly used for agriculture and industry. Among them, agricultural demand accounts for the main position, accounting for about 70%, and most of it is directly applied as nitrogen fertilizer to crops, grains, fruits, and vegetables. A small portion is synthesized with phosphate and potassium fertilizers to form composite fertilizers and reused in agriculture. The industrial demand is mainly for urea formaldehyde resin, accounting for about 20%. Urea can also be used for melamine and desulfurization and denitrification in power plants.
Agricultural demand is steadily increasing. The country attaches great importance to food security, and the area of grain cultivation is gradually increasing. As of the end of 2022, the total arable land area in China was 1.914 billion acres (127.601 million hectares), a net increase of approximately 1.3 million acres compared to the end of 2021. The increase in arable land has led to an increase in agricultural demand for urea. The seasonal demand for urea in agriculture is relatively strong, and the peak season for agricultural fertilizer use is mostly from March to June.
Industrial demand is sluggish. Urea formaldehyde resin is mainly used in Engineered wood industry. Engineered wood is mainly used in the real estate industry. The real estate industry is currently in a downturn, and the demand for urea in urea formaldehyde resin is currently not favorable. According to the statistics of Guigang Municipal Bureau of Statistics, the plywood production fell 26.7% from January to May this year. It is estimated that the urea demand of Engineered wood will decrease by about 1 million tons in the first half of the year.
In the first half of 2023, the price of melamine significantly decreased, from 8233 yuan/ton to 6575 yuan/ton, a decrease of 20.14%. Producing 1 ton of melamine typically requires 3 tons of urea. According to statistics, the production of melamine in the first half of this year was about 660000 tons, a year-on-year decrease of 128000 tons, equivalent to a decrease of 380000 tons in urea demand.
Production capacity and output
As of the first half of 2023, the urea production capacity was around 75 million tons. The average operating rate of urea enterprises in the first half of the year was around 78%, with a cumulative production of 29.71 million tons, an increase of 800000 tons compared to the same period last year. The cumulative apparent consumption is around 28.8 million tons, an increase of 500000 tons compared to the same period last year. It is understood that the production capacity of newly added and replaced urea plants in 2023 will reach approximately 6.02 million tons (5.22 million tons newly added and replaced with 800000 tons).
Export
From export data, the cumulative export of urea in the first half of 2023 was 1.086 million tons, an increase of 284400 tons compared to the same period in 2022 and a decrease of 1.4155 million tons compared to the same period in 2021. Since the implementation of the urea export inspection policy on October 15, 2021, China’s urea export volume has almost halved. The country with the highest number of urea exports in the first half of the year was South Korea, with a cumulative export volume of 175500 tons, followed by India, with a cumulative export volume of 165700 tons. At present, the FOB price of small particles in China is between 318-320 US dollars/ton (equivalent to RMB 2285-2299 yuan/ton), and the FOB price of large particle ports is between 340-350 US dollars/ton (equivalent to RMB 2443-2515 yuan/ton)
Future prospects
In the second half of 2023, the urea market may experience fluctuations and declines.
Cost side: After a significant decline in the first half of the year, coal prices are expected to stabilize in the second half of the year.
Supply side: There will still be new production capacity in the second half of the year, and daily production may exceed 180000 tons, further increasing supply pressure.
Demand side: There is currently no significant positive support for agricultural demand in the second half of the year. Fertilization in autumn and winter storage at the end of the year should provide some support. Industrial demand is light. The real estate industry is neither warm nor hot, with average construction of sheet metal factories and industrial procurement being the main focus.
Export side: Due to the rise in natural gas prices, international urea prices are currently continuously rising. Under the increasing contradiction between supply and demand, the export side may be a major advantage. But it depends on national policies and the price difference between domestic and foreign markets.
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