Forecast: The overall price trend of urea in the second quarter is likely to be weak

Starting from the fourth quarter of 2020, due to the shortage of natural gas, domestic gas-head urea companies have shut down a large area, and the daily output of urea has fallen sharply. After entering 2021, the recovery of domestic urea production has been slow. In addition, due to the impact of the new crown epidemic in Hebei in early January, domestic traders are worried that due to the epidemic control, logistics and delivery are not smooth, the time for fertilizer preparation is advanced, and the tight supply market causes the price of urea to continue to rise. Since the end of January, leading enterprises in the southwest region have resumed production one after another, but at this time the rapid rise in international urea prices continues to push up domestic urea prices.

After entering February, with the rapid recovery of urea daily output, the domestic urea price began to fall due to the gradual decrease in agricultural demand due to the advance of domestic fertilizer preparation. After the Spring Festival holiday, due to the gradual start of spring ploughing and the gradual start of industrial demand, the market improved slightly. However, as agricultural demand gradually faded and urea was put on the market due to short reserves, the price of urea continued to fall until the news of the printing standard was released on March 13. The printed standard price is in line with the domestic price. The domestic urea bid is expected to reach the million-ton level, and the domestic urea price has begun to rise rapidly. The purchase letter of intent signed by India on March 31 is only 802,500 tons, which is far from the previous expected 1.332 million tons. At least 300,000 tons of goods prepared for export in the early stage will be stranded in the port or returned to the domestic market, and the current market prices will start. Go lower. After the stamping craze subsides, the domestic market will eventually return to fundamentals.

The growth rate of raw materials is less than that of finished products, and corporate profits continue to rise

Beginning in late January, thermal coal has been leading the decline, and prices have stabilized a week before the Spring Festival. After the Spring Festival, major coal mines have started construction one after another, supply has gradually become loose, and the prices of major coal types have begun to drop. After entering March, due to the implementation of the dual energy consumption control policy in Inner Mongolia, coal began to rebound from a low level. After April 1, the national heating company ceased operation and the demand for residential coal gradually declined. However, the overall macro environment is getting better and the demand for industrial coal is good. It is expected that coal prices will be adjusted at a high level in the second quarter. The price of natural gas begins to fall gradually with the loose supply of natural gas. As natural gas enters the off-season of demand, the price of natural gas will continue to run at a low level. Despite the current increase in coal prices, urea has increased even more. The profits of coal-based urea production companies are still growing. The fixed bed process currently has a profit of about 500 CNY/ton per ton, and the coal water slurry process has a higher profit of about 800 CNY/ton. From the perspective of thermal coal prices, it is currently at a relatively high position. Although it may continue to increase in the future, the increase is not expected to be too large. Therefore, as long as the price of urea does not fall by more than 500 CNY/ton, urea companies have weak incentives to actively reduce production. The high Nissan situation may continue.

Supply may stabilize and increase, but double control risks should be paid attention to

Urea gas head enterprises have gradually resumed production from the end of January, but after February, due to the arrival of the Spring Festival holiday, the number of companies stopping for maintenance in various regions has gradually increased. After the Spring Festival, the operating rate of urea enterprises across the country rebounded rapidly. On March 10, the operating rate of urea enterprises reached 75.76%, which was the highest level over the same period in previous years, and the daily output reached a record high of 163,000 tons in the past five years. From the perspective of supply, there is little room for the operating rate to continue to rise. However, because of the current high profits and the low inventory carried over at the end of last year, the willingness of urea manufacturers to maintain high operating rates is still very strong. Therefore, we expect urea in the second quarter. Supply will continue to run high. It should be noted that in April, more than 4.2 million tons of off-storage fertilizers were put on the market, of which urea may account for no less than 1 million tons. This part of low-priced fertilizers may have a short-term impact on the urea market.

In 2020, due to the impact of the epidemic, many new devices planned to be put into production failed to be put into operation on time. Most of them were delayed until 2021. In the first quarter, the new production capacity was 1.82 million tons, of which Hubei Sanning Chemical Industry Co., Ltd. was 800,000 tons and Jiujiang Xinlianxin 52 10,000 tons, Yunnan Xiangfeng 500,000 tons, but Sanning Chemical is not full production, and is gradually increasing the load. It is expected that the load will continue to increase in the second quarter. In addition, the equipment planned to be put into production in the second quarter is Shandong Runyin Biochemical, with a net production capacity of 1 million tons. There are also many new urea production capacity expectations overseas. However, due to the impact of the epidemic, the pace of production is delayed, and it is not ruled out that the increase in supply will be realized in the second quarter. Possible. In addition, whether the evolution of the dual control policy in Inner Mongolia will affect the supply of urea in Northwest China requires further attention. Although we currently believe that the impact on the supply is limited, we do not rule out the possibility of risks.

There is no bright spot in domestic urea demand, and the printed label may continue to bring fluctuations

At the end of 2020, we expect that the area of grain cultivated this year will increase. The reason is that the price of corn rose sharply last year, and farmers’ initiative to cultivate corn will increase. However, the Central No. 1 document emphasizes "strictly observing the red line of 1.8 billion mu of arable land." On the basis of not increasing the area, increasing the area of corn cultivation can only reduce the area of cultivation of other food crops. In this case, the increase in agricultural demand for urea may be slightly lower than our forecast at the beginning of the year. The second quarter is the traditional peak season for the production of compound fertilizer companies. After the Spring Festival, the operating rate of compound fertilizer companies rebounded rapidly. According to data, as of April 1, the operating rate of compound fertilizer companies was 51.48%, a week-on-week increase of 0.13 percentage points and a month-on-year increase. 19.73 percentage points. Due to the high price of urea in the early stage, the purchase of urea by compound fertilizer companies is limited. At present, compound fertilizer companies still follow the pace of using urea on demand. Therefore, compound fertilizer companies still have a certain demand for urea in the second quarter. In terms of industrial demand, the first half of this year continued the trend of the second half of 2020. The operating rate of plywood factories and melamine enterprises was higher than the same period in previous years. As of April 1, the operating rate of national melamine enterprises was 75.20%, the highest in the past five years. point. After the second quarter, the industry gradually entered the off-season, and industrial demand is expected to decrease compared with the first quarter. At present, there is no relatively concentrated large-scale demand for domestic urea in the second quarter.

On March 13, the Indian RCF released the long-awaited first round of urea bidding for the domestic market in 2021. At that time, the country expected a large gap in India’s urea. Therefore, the 2105 futures contract opened higher on the first trading day after the press release. Going higher, the day's increase reached 3.31%. After the bid opening on the evening of March 22, India's RCF revealed that it was bidding about 1.3 million tons. Starting on March 23, the 2105 futures contract continued to rise, and on March 29, it returned to a high of 2,000 CNY/ton after a month. Because the sharp rise in international urea prices at the beginning of the year has been in line with domestic prices, the spot market has high expectations for urea, and it has continued to rise in late March. After the bid closing on March 31, the total transaction volume determined by India was only 802,500 tons, which was far from the previous 1.332 million tons. This undoubtedly poured cold water on the domestic market, and the domestic market began to decline. The sudden change of the printed standard has a lot to do with the large number of Chinese traders following the standard. The Indian side expects that there will still be 1-2 bids in the second quarter. At present, the domestic urea price is still at a relatively low level internationally. Therefore, the next India's bidding, China's enthusiasm for participation may still be relatively high, but in view of the lessons of this time, the domestic impact of the printing mark may be slightly cooled.

Outlook

Around May is the traditional maintenance season for urea companies, but given the current high daily output of urea, corporate profits are better, and the enthusiasm for starting operations is relatively high. In addition, companies in Inner Mongolia affected by the dual control of energy consumption may resume production one after another in the short term. Internal urea supply may continue to be high. Moreover, there will be a net increase of 1 million tons of production capacity in the second quarter. Therefore, the supply of urea may continue to be high throughout the second quarter. However, it should also prevent the price from falling too fast, leading to a sharp reduction in corporate profits, which will force companies to reduce production risks. In terms of demand, the overall demand in the second quarter was relatively stable. Agricultural demand in some areas began to recover at the end of April, but industrial demand may gradually weaken after May, and there are almost no bright spots in demand throughout the quarter. After the stamped mark at the end of March fell short of expectations, some of the urea at the port continued to be collected at the port or shipped back to the domestic market. The increase in pre-expenditure will gradually be reversed. Over 4 million tons of off-storage fertilizers were put on the market in April. Short-term domestic market urea supply A substantial increase will inevitably cause prices to fall, but due to the low inventory of urea companies in the previous period, the rate of decline may slow down. On the whole, the overall price trend of urea in the second quarter is likely to be weak. The current spread of 2105-2109 is at a reasonable level. In the later stage, the 2109 contract can be shorted according to market conditions. However, we should guard against the risk that the domestic urea price will rise sharply after the second quarter printing standard exceeds expectations.