Urea futures rose sharply on Monday, climbing 5.2% to close at 2,923 yuan/ton ($459/ton).
Since the start of March, prices have climbed 18.6% and have reached their highest level since October 2021.
Urea prices rose significantly during the second half of last year amid the energy crunch in China. At that time, prices bounced from a low of 2,161 yuan/ton in August before reaching a peak of 3,357 in October that triggered government intervention to stabilize prices.
Some facilities in Shanxi province in northern China were forced to reduce production due to orders from environmental regulators.
In addition, the current Covid lockdowns have disrupted truck transportation of urea and caused supply issues in some areas.
Exports in February were relatively strong at 150,000 tons, up 7.1% year on year. But stocks of urea fell by an estimated 40% over the past month.
The situation in China’s northeastern corn belt remains uncertain as Jilin province battles the worst Covid outbreak in the country and strict measures are being introduced across the region to curb infections.
This has restricted the flow of fertilizer into the region. Due to the wild price swings at the end of last year, many farmers failed to stock up on fertilizer and farm-level stocks are considered small.
At the start of this month, national average cash prices for urea were already up 24% from last year. The market sentiment is very bullish due to the combination of plant shutdowns, logistics disruptions, lower stocks levels, and the global macro environment.
Higher prices could cut fertilizer applications by farmers and subsequently impact yields. Combined with the strict Covid lockdowns in northeastern China, farmers face a difficult planting season this year.