Decompression for the urea market started from companies

Since late May, the overall domestic urea market has continued to slump. Continuously lowering the ex-factory price not only failed to bring about ideal sales for the company, but also caused the industry to repeatedly reduce its expectations for the urea bottom line. A short-term price drop may explain this. According to the mainstream factory price quoted by Shandong Urea Enterprises, as of this week, the factory price has dropped from 2,400 yuan/ton to 1,980 yuan today, and the tons have fallen by more than 400 yuan. At this point, everyone wondered whether there was any reason why the price of urea had experienced such a tragedy in just three months.

Analysis of key factors of falling prices Some people blamed the urea export restrictions during the year. It is understood that the weak performance of urea trade this year is a fact, and the average annual export volume of about 3.5 million tons may bring pressure to the market. However, it seems to be far-fetched to insist on this as the reason, after all, this part of sales accounted for only 6% of the country's total production. In other words, even if exports are completely blocked, the country should be able to digest. However, this year's downstream market is unusually sluggish and the demand is bearish for a long time. In this way, not only can we not solve the problem of unsalable harbors, but there is still something that we cannot guarantee.

Some people have fixed the price of coal and linked the price reduction of urea with the cost. Objectively speaking, in the cost structure of producing one ton of urea, the cost of burning coal accounts for about 70%. It is no wonder that after the sharp decline in coal prices, the lower reaches of the U.S. will have the same bearish equities. There is nothing wrong with this kind of thinking, but many friends are somewhat arbitrary when judging whether the cost reduction brings about the falling price of urea prices. Subjectively believe that: coal will drop one hundred urea will also drop one hundred, so there is urea 1800 yuan / ton bottom line price forecast.

The author believes that the above two factors cannot be mistaken, but if it is in the normal market operation, it is not enough to affect the price trend. At present, the main reason for the sharp decline in domestic urea prices should be said to come from the more serious supply and demand surplus. The obstruction of the export and the decline in coal prices can only be described as "the house leaks in the face of nightly rain". In short, only when the market exceeds supply, manufacturers will become increasingly passive and gradually lose their price speaking power. Therefore, those unfavorable factors that could have been ignored by the market will also be amplified by the market due to the supply and demand issue, which may be said to be worse.

The company limited production for urea decompression According to statistics from the Bureau of Statistics, China’s physical production of urea from January to July was 38.368 million tons, an increase of 9.8% compared with the same period of last year. If the total national urea production capacity is 75 million tons (measured), the industry average operating rate has reached more than 85%. If the company continues to produce according to the current operating rate, the output of urea will exceed 65 million tons during the year. This is undoubtedly a "heavy burden" for the domestic market with an annual apparent consumption of only 5,000-300 million tons of urea. At this point, I believe that the vast majority of urea companies have seen this problem, but they have no intention of starting production from themselves. The reason is simple. Urea prices are lacking in profit all year round. It is hard to grab a high profit for a year and just catch up with the coal price cuts. Who would have let this opportunity go? Having said that, at this time, the domestic urea market has indeed reached a time of choice. Is it limiting production or inflating the surplus? It is believed that every urea production company has its own metrics. Apply a catchphrase: "The Diaoyu Islands are China's, and the urea market is everyone's." Only the enterprises can limit production first, and solve the problem of excess supply and demand. Urea prices can be improved in the true sense, and manufacturers and distributors can overcome this difficulty. .