Introduction: Urea, also known as urea or carbamide, is an organic compound composed of carbon, nitrogen, oxygen, and hydrogen, and is a white crystal. Urea is a neutral fertilizer that is suitable for various soils and plants. Because it has the advantages of easy preservation, convenient use, and minimal soil damage, it is a widely used chemical nitrogen fertilizer and also the nitrogen fertilizer with the highest nitrogen content.
The upstream production raw materials for urea are coal or natural gas. The intermediate process involves reacting high-purity carbon dioxide and synthetic ammonia to produce urea under certain conditions. The downstream of urea is mainly used for agriculture and industry. Among them, agricultural demand accounts for the main position, accounting for about 70%. Most of it is directly applied as nitrogen fertilizer to crops, grains, fruits and vegetables, and a small portion is synthesized with phosphorus and potassium fertilizers to form compound fertilizers and reused in agriculture. The industrial demand is mainly for urea formaldehyde resin, accounting for about 20%, and urea can also be used for melamine and desulfurization and denitrification in power plants.
The 2023 urea market in Shandong Province experienced a V-shaped fluctuation
According to the Commodity Market Analysis System of Shengyishe, the urea market in 2023 will generally show a V-shaped trend of first falling and then rising. Narrow rise in the first quarter, significant decline in the second quarter, significant increase in the third quarter, and first rise and then fall in the fourth quarter. The highest point of the year was in early March, with an average market price of around 2841.88 yuan/ton. The lowest point of the year was in mid June, with a price of around 2210 yuan/ton. The maximum decline for the year was 22.23%.
From the monthly K-bar chart, it can be seen that urea has experienced more decline than increase throughout the year. The largest decline was in May, a decrease of 8.08%, and the highest increase was in July, an increase of 15.86%.
First quarter: ups and downs. After New Year’s Day, the logistics and transportation situation improved, and agriculture began to prepare fertilizers. Downstream compound fertilizer factories made up their positions at low prices, and the market began to warm up. In early February, daily urea production remained high, but coal prices fell and cost support was insufficient, resulting in a slight decline in urea prices. In late February, as spring plowing approaches and agricultural demand is strong, urea prices usher in a new round of increase. But in mid March, there was a decrease in spring plowing and fertilizer supplementation, while the price of raw coal continued to decline. The downstream compound fertilizer market was average, and downstream demand weakened. Urea showed a characteristic of not being prosperous during the peak season, and urea prices began a downward trend.
Q2: All the way down. In April and May, agricultural demand continued to weaken, entering the off-season of agricultural demand. Urea companies started at a high level, causing serious accumulation of urea stocks. Urea manufacturers significantly lowered their prices, creating a strong bearish market atmosphere. The summer fertilizer production of composite fertilizers was delayed, and the composite fertilizer industry started below expectations. The production of sheet factories continued to be sluggish, coupled with insufficient cost support, multiple negative factors led to a continuous decline in urea prices. In early June, agricultural demand was concentrated and replenished, coupled with the impact of a new round of bidding in India, market sentiment improved, and urea prices surged.
Third quarter: Significant increase. Affected by the sharp drop in urea prices in the second quarter, the social inventory of urea remained low, and planned maintenance and malfunctions led to a decrease in the operating rate of enterprises. But with the outbreak of fertilizer demand in summer, coupled with a significantly higher than expected number of bids in India, the market trading atmosphere is hot, urea supply is in short supply, and urea prices continue to fluctuate and rise, showing a characteristic of not being weak in the off-season.
Fourth quarter: first rising and then falling. In late October, urea prices saw a significant increase again due to the favorable export performance of India and the slow start of winter storage. In the futures market, on November 16th, the main contract price for urea futures was 2383 yuan/ton, an increase of over 40% compared to mid June. In order to bring urea prices back to rationality, maintain normal production and sales profits, and ensure the supply of winter storage and spring plowing fertilizers in 2024, policy efforts have begun. On November 17th, twelve companies including Sinochem Chemical Fertilizer issued a joint initiative to promote the supply and price stability of urea in the market. They will not hoard or pursue price increases, and if necessary, take timely measures to serve the supply and price stability. Once the initiative was launched, the domestic urea market began to fluctuate and decline.
How will the urea market develop in 2024?
From the perspective of production capacity and output: According to data statistics, urea production in China entered a concentrated period in 2023, with a domestic urea production capacity of about 73.81 million tons, an increase of 2.16 million tons compared to 2022. In 2023, the domestic urea production was around 60.16 million tons, an increase of 6.44% compared to 2022. In 2024, there are still plans to increase production capacity in the northwest, central, and eastern regions. It is expected that the production capacity increment of the urea industry will be 4.25 million tons in 2024. However, the production progress of downstream compound fertilizers is slower than that of urea, and the board industry is mainly focused on regional transfer with limited new production capacity. The supply and demand relationship in the domestic urea market will shift from a basic balance of supply and demand to an oversupply, or may shift the price center of the domestic urea market downwards
From the perspective of imports and exports: In terms of urea exports in the past five years, the export volume has been fluctuating. The annual urea export volume in 2023 was 4.25 million tons, an increase of 50.18% compared to 2022. Among them, September had the highest exports, with a monthly export of 1.18 million tons. The country with the highest annual export volume is still India, with an export volume of 1.93 million tons, accounting for 45.49% of the total export volume. The export volume of urea in China may decrease in 2024. Firstly, global urea production capacity continues to expand, and the international urea price center may shift downwards. Secondly, India will have one 1.27 million ton unit put into operation in 2024, which may reduce the import demand for urea in China. The third is the impact of the policy of ensuring supply and stabilizing prices. The “legal inspection” policy is becoming stricter, and the export volume of urea will decrease.
From the perspective of market demand, the estimated total demand for urea in 2024 is around 58 million tons. Agricultural demand has always been the main flow of urea in China. As of the end of 2023, the national grain sowing area was 118969 thousand hectares (1784.53 million mu), an increase of 636 thousand hectares (9.55 million mu) or 0.5% compared to 2022. The cultivated land area is steadily increasing, and the agricultural demand for urea is constantly increasing. Industrial demand may increase slightly. In 2024, the urea demand for melamine, urea formaldehyde resin, and automotive urea showed a stable state, with little or no change. In terms of thermal power shortage, due to policy guidance, urea will be used as a reducing agent to further replace synthetic ammonia in 2024, and it is expected that the demand for urea will further increase.
Looking at the future: urea supply will increase in 2024, demand will be weak, and exports will be tight. It is expected that the price center of the domestic urea market will fluctuate downward in 2024.
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