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Domestic urea prices slumped in the first quarter of 2014 amid overcapacity and the sluggish coal market, while prices in the overseas market were on an uptrend in the first month, before reversing trend in the rest of the quarter. EXW (ex-works) prices in Shandong dropped from yuan (CNY) 1,580-1,630/tonne to CNY1,450-1,510/tonne during the period, while local EXWH prices fell from CNY1,640-1,650/tonne to CNY1,530-1,540/tonne. Export prices for prilled urea rose from $325-330/tonne FOB (free on board) in early January to $340-345/tonne FOB in early February, and then dropped to $300-307/tonne FOB at the end of the quarter.
Some compound fertilizer plants were shut for maintenance during the Lunar New Year holiday. Demand from the industrial sector was moderate and urea was mainly supplied to downstream compound fertilizer producers from mid-January to mid-February. However, agricultural demand was weak. Export prices during the same period surged to $375/tonne FOB for granular urea and $340-345/tonne FOB for prilled urea, supported by rising overseas prices and strong demand from spring fertilizer application in the US.
Mid-February is the beginning of a traditional fertilizer application period for wheat in the northern part of China. The period lengthened in 2014 as a result of dryness in most parts of China due to rare rains amid a cold weather in some regions. Agricultural demand for fertilizer was strong in Hubei, Hunan and northeast China, where the spring sowing began, while demand in Henan, Shandong and Hebei came to an end from mid-February. Therefore, overall demand from the agricultural sector was moderate.
Downstream compound fertilizer producers resumed nitrogen fertilizer production from mid-to-late March. However, most purchased feedstock urea in line with their requirements, given urea overcapacity and declining urea prices. Their feedstock inventory levels were moderate. Some urea plants were said to have been scheduled for maintenance in April. Domestic urea prices may stop declining if the turnarounds take place as planned. However, prevailing conditions led players to expect prices to continue to drop.
Overseas demand was soft after mid-February, while supply was ample. As a result, the prices went on a downtrend. India-based Minerals and Metals Trading Corp (MMTC) issued a buy tender with no determined quantities on 12 March. The tender was awarded on 19 March, and the volumes were at 1m-1.01m tonnes, with 800,000-850,000 tonnes being Chinese cargoes. The tender was closed at $325-328.65/tonne CFR (cost & freight), equivalent to CNY1,410-1,430/tonne EXW Shandong, CNY100/tonne lower than local EXW prices. This exerted downward pressure on the domestic prices.
Export volumes of Chinese urea increased significantly after the implementation of new export policies of 2014. These cargoes were mainly sold to the US and India. However, this failed to push up the domestic urea prices, which were mainly affected by agricultural and industrial demand, capacity and operating rates.
Urea prices in Yuzhny fluctuated during the first quarter of 2014, initially risingon the back of strong demand for spring application and limited supply, before dropping back as demand weakened.
Yuzhny prilled urea prices were at $330-335/tonne FOB (free on board) at the start of January, before reaching a peak for the quarter at $365-370/tonne FOB at the end of January.
Prices then started to slip, edging downwards on slow demand and plentiful supply. Prices ended the quarter at $300-305/tonne FOB Yuzhny with trader bids at lower levels.
The civil unrest in Ukraine and the arrest of Dmitry Firtash, owner of a large proportion of Ukrainian urea production, has led to some nervousness in the market, but at the end of the first quarter had not had any impact on production or prices of Ukrainian urea.
Natural gas prices for Ukrainian nitrogen producers are expected to rise from 1 April after Russia’s Gazprom said it would remove the discount due to unpaid debts and if production costs are raised significantly then this could impact production levels in Ukraine.
Updated to Q1 2014
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