In the first half of this year, China's urea production capacity has been over-saturated, leading to weak export performance and low prices. According to data from the National Bureau of Statistics, domestic urea output reached 6.583 million tons in June, hitting a record high. Over the first half of the year, total domestic production amounted to 36.7 million tons, representing a 10.6% increase compared to the same period last year. Meanwhile, customs data showed that exports in June fell sharply by 61.6% year-on-year to 35,100 tons. However, the total exports for the first half of the year reached 1.309 million tons, up 167% from the previous year, with an average export price of around $370 per ton.
According to Li Jianan, a chemical industry researcher at China Investment Advisor, the weak export performance is largely due to sluggish domestic demand caused by food safety concerns. Farmers are buying less, while suppliers are struggling to maintain market share amid ongoing price wars. This situation is mirrored globally, as supply-demand imbalances have led to production cuts and shutdowns in Eastern Europe and the Middle East. As a result, the global urea market remains under pressure, and China’s low export prices reflect broader international trends.
Currently, the domestic urea market is caught in a production cycle. As domestic prices fall and approach cost levels, companies hesitate to cut back on production because reducing output would increase costs. Additionally, the coal industry has seen a decline this year, with falling coal prices lowering urea production costs. As long as companies avoid losses or keep them within manageable limits, they continue operating at full capacity, which exacerbates the oversupply issue.
With excess domestic supply, exports remain a key outlet. It is reported that the current urea season is more favorable than in 2012. China is now entering a low-tariff export window during the off-season, with reduced fertilizer export tariffs expected to lower costs. Some analysts believe this move could enhance China’s competitiveness in the global market.
However, Li Jianan points out that lower export tariffs may help reduce costs and improve price competitiveness, but it does not necessarily translate into higher profits. The industry still faces overcapacity, and continuous price competition continues to compress profit margins.
Relying on low-price exports to expand global sales is not a sustainable long-term strategy. Li suggests that the future of China’s urea industry should focus on moving toward high-end products to boost core competitiveness, increase product value, and improve profitability.
According to the interview, urea supply is expected to remain oversupplied in the second half of the year, with domestic demand unlikely to improve soon. While falling export prices may help shift some sales overseas and ease domestic price pressures, urea prices are projected to remain slightly lower over the next six months.
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