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The spring ploughing urea market has limited potential for recovery. Where is the new round of bottoming opportunities?
Mar 23, 2018

Entering late March, the "two sessions" of the country were successfully concluded and the emperor's fog and haze were eased. Thanks to the cold air, it was also thanks to the measures for the 2017 Air Pollution Prevention and Control Work in Beijing, Tianjin, Hebei and Neighboring Regions. The implementation of special emission limits for the “2+26” cities makes urea and its downstream enterprises have a deep understanding. March 9 environmental protection "plus code", Shanxi, Hebei, Shandong, part of the urea business policy production. Although urea was given a one-week exploration opportunity, the increase of 30~50 yuan/ton was too shabby, and it was even more difficult to reach downstream players. In the end, the current round of rally, and more and more urea companies have either cut prices or promotions. In addition, after the 20th of this month, the urea recovery production that is subject to temporary policy restrictions on production will bring about an increase in the industry's operating rate and total production capacity. The industry will look at the hollow state and further ferment, and the urea price will not be able to escape before the demand for spring plowing is released. Another deep bottomed out.

The

Environmental protection checks have degree of relaxation

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The industry has always regarded environmental protection inspections as a “double-edged sword” that affects the urea market. Both supply and demand are reduced. For example, this temporary environmental inspection upgrade, directly to Shanxi Jincheng urea companies to break the work, just right spring season, the surrounding area of urea plants invariably increase prices, in the spirit of not lost, trying to stimulate the downstream to open the centralized procurement model. However, the actual results are less than expected. Affected by environmental protection policies, plywood and compound fertilizer companies in the region are also restricted in production, and it is difficult to “act as” and procurement of raw materials is postponed. The demand for urea in agriculture has always been in the situation of purchasing and selling, and controlling the overall market inventory. As a result, most of the urea companies’ prices for new orders have shrunk, and sales pressure has increased. The price drop in the main producing areas at the beginning of this week has dropped by RMB 50-60/ton, and with the “two sessions”, the environmental protection inspections have moderately relaxed. It is expected that the industry has calculated that the price of urea has risen to a new low. In fact, not only is urea production released, but downstream industrial demand will also be better. If the scale of urea production resumed from the previous “gas shortage”, the national urea utilization rate is expected to return to about 57% in late March, and downstream industrial and agricultural demand will gradually improve. From another point of view, the supply and demand situation in the urea market has evolved from a tight one toward a balanced one in the direction of environmental protection policies. Moreover, the latter round of environmental inspection is also a normalization mechanism. Urea supply and industrial demand may maintain a certain threshold.

The

Shrinking agricultural demand shrinks

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Several rounds of spring ploughing agriculture just need to promote the expected defeat of urea, triggering industry doubts, after all, the "arranged" agricultural centralized procurement market can always be caught by some uncontrollable bad news. Looking back at the “gas shortage” brought about by the price hike in urea, it is difficult for the downstream industry to “look on” bearish, and the unrealized increase in the quotation has not been transferred or quickly changed hands to pass the risk; the post-holiday agricultural market feedbacks that the downstream stocks are insufficient and more new. Weakened storage purchase demand, helped the plant to explore the market against the spring plowing fertilizer market, and it is expected that the negative from the delay in industrial demand has inhibited the price increase of urea; with the approach of using fertilizer in the spring, the downstream dealers follow the pattern of follow-up operations. This will help the factory to increase the price of “position warfare”, but from the perspective of the first batch of agricultural fertilizers, the traditional fertilizers such as nitrogen fertilizer, phosphate fertilizer, potash fertilizer, and compound fertilizer have encountered practical problems of shrinking usage. Due to the low prices of agricultural products in the first quarter, farmers’ enthusiasm for grain production has been frustrated, and input costs have also been reduced accordingly. In light of this situation, the fact that agricultural dealers maintain low stocks and fast-forward and fast-out practices has passed the risk upwards to the factory. In other words, regardless of the shrinking demand for agriculture, or the replacement of new types of fertilizers, or because farmers reduce the cost of grain production, the potential for price increase of urea in spring plowing is not significant.


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