Chinese Urea market to remain unhinged, demand supply imbalance to continue

China has reported sustained shortages in Urea supply, pushing offers above USD419/MT in mid-December. Urea prices are currently at historic highs, on the back of cost support from upstream Natural Gas and coal, which has a beneficial impact on the price trend. Urea FOB Qingdao prices for 14th January 2022, have settled at USD 455 per metric tonne, showing a 9% month-on-month increment. 

According to market sources, “Urea firms' inventory level declined by 8.37 percent, reaching at 580,000 tonnes last week, marking the 8th week of destocking since mid-to-late November last year, although the present inventory level is still the second largest in recent year”. Recently, port inventories have also been firm. However, Agricultural demand continues to rise as a result of increased fertiliser demand and downstream stocking activities. The pandemic continues to spread in Henan, Guangdong, Tianjin, Beijing, and other regions, posing a threat to the Urea market's logistics, transportation, production, and consumption. The market sentiment is currently uncertain about the Urea market due to the upcoming festival season and Lunar New Year in the country.

Last week, the Urea market recovered from the turmoil caused by external sources, and it resumed its normal swings. As per ChemAnalyst, “As the Spring Festival approaches, some downstream companies will gradually enter the holiday season, and as the price of Urea continues to rise or once again inhibits willingness to purchase in the middle and lower reaches, the short-term lack of demand in the later period may lead to the risk of Urea prices falling. Overall, the current supply and demand imbalance in the Urea market will continue, but it may gradually transition to a pattern of growing supply and weakening demand before the Spring Festival vacation. There's also a chance that the trend will weaken.”