Urea: Exhausted state shows up

After the long holiday, urea prices in various parts of the country have been shown to be weak, and the long-awaited price reduction of dealers is about to begin. For the expected fall in the current round, most dealers are still waiting to see the need for consideration of procurement. After all, the off-season reserves have a long period of time, and businesses need to take on greater risks. What's more, the profits of the domestic agricultural distribution industry have improved significantly this year compared to previous years, so that dealers who make money are not willing to take risks. Therefore, even if the urea companies hit a price reduction promotion card, businesses will be more cautious.

First of all, the annual output of urea. Judging from the overall supply and demand in the first three quarters of this year and the start of the nationwide urea business, it can already be positively judged as excess production. The annual operating rate of about 80% is matched with the total output capacity of 73 million tons of urea. Without accidents, the total output of urea in the country is expected to reach 58 million tons, which is a market demand of only 52 million tons. It is hard to deal with.

From the trend of the average annual operating rate of urea enterprises in the country over the years, it can be seen that since 2007, due to the successive production of new domestic urea companies, the state of overcapacity has become increasingly serious. During the four years from 2007 to 2010, the total domestic urea production capacity has rapidly increased from 54 million tons to 72.69 million tons. This has further triggered a price war between companies, and pure price cuts have also squandered profits, leading to more urea manufacturers limiting production insured prices. Therefore, in 2008 and 2009, the urea industry can only maintain 81% of the production level to regulate market supply and demand. Even so, annual production is difficult to digest.

Take 2010 as an example: Due to the limitation of energy conservation and emission reduction, the total urea output in the year was 52 million tons, a year-on-year reduction of 3 million tons, and the operating rate was calculated to 72%. At the same time, 7 million tons of urea were consumed in exports and in industry. Under such circumstances, the domestic market can still reach a balance between supply and demand. This just allows us to more clearly see the apparent consumption. So, the expected output of 58 million tons this year, together with the sharp decline in exports, is initially estimated to produce at least 10 million tons of excess output during the year.

Second, there is no sign of activation in the reserve. Although the tender for urea light storage in 2011 ended at the end of September, the downstream distributors still lacked the enthusiasm for purchasing and the sales of enterprises were not satisfactory. In the eyes of the light stockists, there is a possibility that the ex-factory price of urea will fall below 2,000 yuan/ton.

To sum up, in the fourth quarter, there will certainly be a game where manufacturers will focus on prices. According to the objective factors of the low inventory in the current market and the waiting time for compound fertilizer companies to purchase raw materials, the price of urea temporarily does not have the conditions for a sharp drop. According to the results of India's October 5 bid, once the domestic urea price dropped to 2,100 yuan/ton, it would have met the CIF of 522 US dollars/ton, and exports will also have improved.

Therefore, the recent price reduction is likely to fluctuate for a week at the position of 2,100 yuan, but this part of the demand is difficult to achieve sustained price stability. Afterwards, the price will begin to be reduced by taking the light reserve price as the standard.