UREA

In the past month, the main contract of urea futures has been maintained in the range of 1800~1860

yuan/ton. From the analysis of supply and demand of the urea industry, the urea market may rebound in

the medium term, but it is still weak in the long run.

In 2024, the supply of urea is abundant. Affected by the promotion of the insurance policy and the

production of new capacity, the daily output of urea surged to 200,000 tons, a high level in nearly 10

years. Under the pressure of high daily production, the industry inventory has gradually accumulated.

Data show that as of the first week of November, enterprise inventories have reached 1.2 million tons,

and social inventories continue to accumulate. In the short term, the supply pressure of the urea industry

is large, which is one of the important reasons for the weak market.

In the medium term, there may be supply side variables. Over the years, affected by natural gas supply,

keep up with tourist negotiations and other factors, gas head enterprise production from mid-to-late

November will decline to varying degrees, while gas head production capacity accounts for 20%, normal

daily production remains at 40,000 tons, and the largest daily production reduction in history has reached

30,000 tons. Although production cuts have been reduced in recent years, factories are still routinely

overhauled. If the gas head enterprises carry out routine production cuts in November and December,

then the supply side will bring certain support to the urea market in the medium term. In the long run, the

state of supply increase has not changed, including the second phase of Hualu Jingzhou plant, Shaanxi

Shaanxi, Gansu Liuhua, Jiangsu Hengsheng and other more than 3 million tons of new capacity or will

be put into production in the fourth quarter or the first quarter of next year, which is an important reason

for the long-term weak trend of the urea market.

The compound fertilizer industry, as one of the main downstream of urea, is often an important factor

supporting the urea market in stages. From the perspective of production cycle, it is divided into spring

fertilizer production, summer fertilizer production, autumn fertilizer production, and winter storage

fertilizer production, and summer fertilizer and winter storage fertilizer production are the two most

important stages that can support the urea market, which will be accompanied by a substantial increase

in the operating rate. Since November, the operation rate of compound fertilizer has gradually increased.

Statistics show that as of the first of November, the operating rate of compound fertilizer is about 37%,

which is 7 percentage points higher than the lowest point in October. From the current survey, some

compound fertilizer enterprises have begun to produce winter storage fertilizer, and maintain a timely

and moderate procurement mentality for various raw materials. Next, the operating rate of compound

fertilizer or about 50%, the future production of compound fertilizer or become an important factor to

promote the medium-term market rebound, but we should pay attention to its raw material procurement

rhythm. At the same time, the price of ammonium chloride is relatively low, and its cost performance is

higher than that of urea, so the substitution of urea deserves attention.The Northeast market is the most

important agricultural production base in China, and its demand for fertilizer has maintained an

increasing trend in recent years. In order to ensure the use of corn fertilizer after the Spring Festival, urea

will be stored in the fourth quarter of each year in the Northeast market. In 2024, the agricultural reserve

of the Northeast market is slightly delayed than in previous years, and if its reserve procurement is

started in the later stage, it will become a key link to support the medium-term market of urea.

In summary, the supply pressure of the short-term urea industry is still large, but the market has a

“bottom-diving” mentality, and the market will continue to adjust in a narrow range. In the medium term,

the supply side needs to pay attention to the maintenance of natural gas plants, and the demand side

needs to pay attention to the procurement of raw materials of compound fertilizer and the reserve

procurement of the Northeast market, such as the resonance of the three factors, and the medium-term

market of urea may rebound. In the long run, the urea industry is still in the capacity expansion cycle, the

supply pressure is still large, while the real estate industry boom is not high, the demand for sheet metal

and melamine is reduced, and the demand for power plants is peaked, in this case, the long-term trend of

urea is still weak.