In early July 2016, the average domestic urea quotation was RMB 1,285.4 per tonne; by the end of September, the average factory-gate quotation had fallen to RMB 1,241.4 per tonne, a decline of 3.42%. At the end of September, mainstream ex-factory quotations in the domestic urea market ranged from RMB 1,120 to RMB 1,200 per tonne, with lower-end quotes at RMB 1,050–1,100 per tonne and higher-end quotes at RMB 1,200–1,300 per tonne.
Market Analysis
Products: In July, the domestic urea market remained largely stable, with prices in some regions showing signs of easing. Overall, although the urea market received modest support, the broader nitrogen fertilizer sector continued to trend weakly, with most distributors adopting a wait-and-see approach. In August, the domestic urea market continued to trade in a consolidating and declining range; in Shanxi, Inner Mongolia, and Xinjiang, where earlier quotes were already quite low, price declines were not pronounced, whereas in relatively higher-priced regions such as East China, North China, and Central China, prices fell noticeably. Urea plant utilization rates continued to decline, with several producers halting operations for maintenance. Average utilization in East China stood at around 60%, in Central China at about 65%, and in North China at roughly 64%. In September, the domestic urea market generally exhibited a steady-to-mildly rising trend, with the upward momentum gradually stabilizing and overall pricing remaining predominantly stable. On the upstream side, domestic anthracite coal prices remained firm to slightly stronger, with trading activity remaining decent. Influenced by supply-side reforms and environmental regulations, anthracite supplies have been shrinking, though this has not yet led to severe shortages; in some localized areas, transportation constraints have resulted in tighter resource availability. Recent feedback from mining operators indicates that demand in the residential market for lump coal has begun to pick up, albeit still modestly, with sales of lump coal slightly better than earlier levels and inventory levels at most mines remaining low. Downstream traders, however, have not sustained their previous enthusiasm, with new transaction volumes declining markedly and the upward price trend gradually moderating. That said, during the recent price increases, most producers had substantial backlogs of orders to fulfill, leaving little pressure on shipments or inventories and thus supporting firm pricing.
Industry: On August 3, 2016, the State Council issued the “Guiding Opinions on Adjusting the Structure, Promoting Transformation, and Enhancing Efficiency in the Petrochemical Industry” (hereinafter referred to as the “Opinions”), which set forth the overarching requirements, key tasks, and supporting measures for the sustained and healthy development of China’s petrochemical industry. One of the key tasks is to vigorously address excess capacity by strictly controlling the addition of new capacity in sectors characterized by overcapacity, such as urea, ammonium phosphate, calcium carbide, caustic soda, polyvinyl chloride, soda ash, and yellow phosphorus. In addition, the State Council explicitly stated its support for leading petrochemical industries, including fertilizer production, to “go global” and engage in international capacity cooperation.
Future Market Forecast
According to analysts at Business Society Urea, as of the end of September, the domestic urea market remained generally stable with a modest uptick, rising by more than RMB 50 per ton. Most producers are now quoting around RMB 1,200 per ton. However, with no significant increase in downstream demand, price risks have risen and new orders have gradually declined. Going forward, the urea market is expected to remain broadly stable in the fourth quarter, with only minor localized fluctuations.
