In the first half of this year, China's urea production capacity remained high, 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 urea production amounted to 36.7 million tons, marking a 10.6% increase compared to the same period last year. Meanwhile, customs data showed that urea 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, rising by 167% year-on-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 partly due to domestic market challenges. Food safety concerns have led farmers to slow down their purchasing, while domestic suppliers are locked in a price war to maintain market share. This has resulted in sluggish domestic demand. The international urea market faces similar issues, with supply outpacing demand, prompting production cuts and shutdowns in Eastern Europe and the Middle East. As a result, the global supply-demand imbalance remains unresolved in the short term, which is reflected in China’s low export prices.
It's also worth noting that China's urea industry is currently in a production cycle. With domestic prices dropping close to cost levels, companies are hesitant to cut back on production, as reducing operating rates could lead to higher costs. Additionally, the coal sector has seen a downward trend, with falling coal prices lowering urea production costs. As long as companies avoid significant losses, they are likely to continue producing at full capacity, further exacerbating the oversupply issue.
With domestic demand stagnant, excess urea is increasingly being directed toward exports. It is reported that the 2013 urea season was more favorable than in 2012. Now, as China enters the off-season export window, fertilizer export tariffs are expected to decrease, lowering export costs. Some analysts believe this will boost the competitiveness of Chinese urea in the global market.
However, Li Jianan cautions that while lower export tariffs may help reduce costs and improve market access, low-price sales do not necessarily translate into substantial profits. The overcapacity in the domestic industry continues to drive price wars, squeezing profit margins. Expanding exports through low-price strategies is not a sustainable long-term solution.
Looking ahead, Li suggests that the domestic urea industry should focus on upgrading to high-end products to enhance its core competitiveness. By increasing the value of its products, companies can improve profitability and reduce reliance on price-based competition.
According to the interview, it is expected that urea supply in China will remain surplus in the second half of the year, with domestic demand unlikely to improve in the near term. While the drop in export prices may help shift some sales to international markets, it is also expected to put downward pressure on domestic prices. Urea prices are projected to remain slightly lower over the next six months.
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