Urea prices continue to fall with Zhengzhou Commodity Exchange futures trading into new multi-year lows on Tuesday and down 22% year on year, the most of any agricultural-related commodity tracked in the Futures Recap table.
Cash prices also continue lower with most markets now below 1600 yuan per ton.
Production remains relatively high with last week’s production at 1.24 million tons, up 11.75% year on year. The operating rates of the industry were at 79% of capacity, up 8.0% from last month, and up 5.9% year on year.
This has led to a large increase in inventory, with stockpiles now at 1.55 million tons, up 159% year on year.
Demand has also been relatively weak. Large volatility in recent years led to large losses among dealers. Crop prices are also low which means farmers might not want to spend as much on inputs. Because of this, dealers are hesitant to buy large amounts in advance of spring planting.
Despite the large oversupply, the restrictions on exports remain and are getting tighter.
Customs announced a change in classification for HS Code 31051000 which refers to small, packaged fertilizer. Previously, this was defined as fertilizer in packages weighing not more than 10 kilograms. As of January 1st, this has been changed to refer to the weight on the item on the bill of lading.
For example, the weight restriction of 10kg would now apply to a pallet of packaged fertilizer, not the fertilizer packages themselves.
This has been a relatively small market but grew after the export restrictions in late 2021. Yearly volumes rose from 110k tons in 2021 to 500k tons in 2024. But this is still relatively small compared to bulk exports which were 5.5 million tons in 2020.
Although the market is down sharply, Customs is still tightening export limits. Although this hurts urea producers, it also means cheaper inputs for farmers during a time when crop prices are down sharply and Beijing is focused on increasing self-sufficiency and grain output.