The rebound of the epidemic affects India's urea production capacity, which is good for China's exports

Since the outbreak of the covid-19 epidemic in 2020, global food security problems have become prominent, and global agricultural product prices have also risen sharply. As a large country with a population of 1.3 billion, India still needs to import 6-10 million tons of urea from the world every year to meet domestic crop cultivation needs. Whether the second rebound of the epidemic in India will have an impact on the Chinese urea export market, this article attempts to analyze from the perspective of fundamental data for reference.

Inferring the subsequent bidding volume based on the supply and demand of India's Kharif season

In the agricultural season, agricultural planting in India is divided into rainy season (Kharif season, April-September) and dry season (Rabi season, October-March of the following year). In February this year, the daily number of new cases of the epidemic in India gradually dropped to less than 10,000. The effect of epidemic prevention and control has gradually manifested. The Indian economy has gradually recovered and the production and supply chain has gradually recovered. However, between March and April, a large number of large-scale gathering activities occurred in India without completely controlling the epidemic. Since April, the epidemic rebounded sharply for the second time and the panic about the epidemic in India was permeated. Due to the high probability of planned maintenance and failure of India's domestic Urea plants in the second quarter, we believe that the recent rebound of the second epidemic in India will likely affect its urea production capacity, and the outbreak of the epidemic in India last year has a similar impact on the Urea market.

According to data released by the Government of India Department of Fertilizers, India’s production of urea in the 2020/2021 fiscal year (that is, April 2020-March 2021) was 24.826 million tons; in March 2021, India’s RFCL company put into production 1.27 million tons/ Annual urea production capacity, it is roughly estimated that India currently has 26 million tons/year urea production capacity, and the average monthly urea production is about 2.2 million tons.

According to a February report from the Ministry of Fertilizers of India, India still has 3.81 million tons of urea production capacity to be put into production in 2021. The current progress of the project is about 85%. Considering the second rebound of the epidemic in India, this new production capacity of 3.81 million tons will be in the Kharif season in India. It is difficult to put into production smoothly, so the capacity increase in the Kharif season is not considered. According to estimates, considering the impact of the epidemic, India’s Kharif season output in 2021 will be about 11.8 million tons, which is about 1.1 million tons lower than the output without the impact of the epidemic.

In terms of demand, India has a population of 1.3 billion. Under the dual pressure of the current epidemic and food security, the planting area of domestic crops in India in fiscal year 2021/2022 is likely to increase steadily compared with the previous fiscal year. The demand for urea from corresponding crops is also Stable and increase. The actual demand data of urea in India is derived from the actual monthly sales. We temporarily use the 17.75 million tons of Kharif quarterly demand forecast for the 2021/2022 fiscal year provided by the Ministry of Fertilizers in India, which is the same as the previous fiscal year, which is the fiscal year 2020/2021. The actual sales volume of urea in Kharif season was 17.786 million tons. Without considering the inventory situation, India still needs to import 5.95 million tons of urea in the 2021 Kharif season. According to the April urea inventory data released by the Ministry of Fertilizers of India, 6.783 million tons, which was lower than the inventory data of the same period in 2018, 2019 and 2020 for two consecutive months. To ensure that the urea inventory is at a safe level, it is not ruled out that India’s 2021 Kharif season imported urea will be imported. More than 5.95 million tons (calculated based on Kharif season imports of 5.95 million tons).

According to the current Indian fertilizer import system, urea imports are generally carried out through the global release of procurement tenders. Since March 2021, India’s RCF and MMTC have respectively issued corresponding urea procurement tenders. The two bids amounted to approximately 1.35 million tons. It is expected to arrive at ports on the east and west coasts of India in May-July. Therefore, India may still pay in Kharif season from May to September. Need to purchase 4.6 million tons of urea through the global market.

The impact of India's follow-up bidding on the Chinese urea market

According to the Indian urea import system, the impact of Indian urea bidding on the Chinese market is mainly carried out through the volume and price of each bidding.

In terms of quantity, the proportion of India's imports of urea from Chinese sources in 2019 and 2020 is 24.6% and 22% respectively, which is not much different from the average of 22.6% in the past five years. If calculated based on an average of 22.6%, it is estimated that China is still expected to export more than 1 million tons of urea to India in the next May to September.

From the price point of view, the current Chinese urea equivalent to FOB price is about US$356/ton, which is not much different from the current May FOB Egypt and FOB Middle East prices. The recent international market Egyptian cargo shipping schedule is 360 FOB prices in June and July. -370 USD/ton. In the future, China's Urea supply will still have certain price competitiveness when participating in Indian bidding. In the next few months, under the support of high global agricultural product prices and the loose liquidity of overseas currencies after the epidemic, we predict that the FOB price of urea in the international market will be difficult to significantly reduce, and the probability of high fluctuations will be greater. This will greatly increase the participation of Chinese urea sources in Indian tenders. possibility.

Judging from the estimated volume and price of subsequent Indian bids, Chinese sources are expected to continue to export more than 1 million tons in the next few months, and Chinese sources may not be significantly inferior to the Middle East and Egyptian sources in terms of export price competitiveness. If this export is expected to materialize This will further support or improve the fundamentals of China's urea market.

India's urea production decreases and China's docking exports increase

The second quarter of the epidemic in India rebounded, and the urea production and supply chain may be affected. The second quarter is a period of high incidence of equipment maintenance and failures, and India's urea production is likely to decrease. However, the demand for the Kharif season in India that has arrived is estimated by the Ministry of Fertilizers of India to have little change from the previous year, at 17.75 million tons. Currently, India's urea inventory is at a low level in the past three years. To ensure that the urea inventory is at a safe level, India will still need to import about 4.6 million tons of urea in the Kharif season. It is estimated that China is expected to export more than 1 million tons.

Supported by the high global agricultural product prices and the loose liquidity of overseas currencies after the epidemic, the export price competitiveness of Chinese sources may not be significantly inferior to those of the Middle East and Egypt. This will increase the possibility of China's subsequent docking of printed standard exports, which will affect China's urea. Market fundamentals have further support or improvement. At present, the overall inventory of China's urea market is not high and manufacturers' inventories are historically low. Export expectations may still support and even promote the upward boom of the Chinese urea market since the second half of last year.