Time flies by like a white horse! In the blink of an eye, halfway through 2022. Although the situation this year is complicated, urea still has a satisfactory answer. Taking the price in Shandong as an example, the ex-factory level at the beginning of the year was 2,500 yuan/ton. After three rounds of significant increases, it reached the highest point in the first half of the year, around 3,200 yuan/ton in the second week of June, an increase of 28%. In this article, through the development of the timeline, the major events in the first half of the year are combined with a simple analysis of the urea market, which is for reference only.
People rely on food as the sky, and agriculture is stable and the world is safe. Chemical fertilizers play an important role in agricultural production. Proper application of chemical fertilizers can increase a certain amount of grain output. In order to ensure the stability of fertilizer prices and protect the enthusiasm of agricultural production, since the second half of 2021, the National Development and Reform Commission has established a working mechanism for ensuring supply and price of fertilizers with relevant departments and units, and has carried out a series of work to ensure supply and price stability. At the end of 2021, a temporary reserve system for summer management fertilizers will be introduced. The total reserve is 3.27 million tons, the storage period is from January 8, 2022 to February 28, 2022, the storage period is March 1, 2022 to May 31, and the reserve expiration date is June 1, 2022. day. The purpose of the country's introduction of summer management fertilizer is to ensure the supply and stabilize the price, so in the storage period from January to February, the domestic agricultural demand is in the off-season, because the reserve function of the market reservoir has been increased, and the price of urea in the mainstream area is basically 2600 yuan / Small range fluctuations around t. In June, many places in China are in the peak season of summer topdressing, and the release of summer tube fertilizer has promoted the fall of the high price of urea to a certain extent, thus protecting the enthusiasm of farmers to use fertilizers for production.
2). Russia-Ukraine conflict escalates
In mid-February 2022, the Russian-Ukrainian war broke out, which changed the pattern of global fertilizer, grain trade, and shipping, which in turn affected the fertilizer market trend. Therefore, in mid-February, the global international market bottomed out and continued until mid-March. Why the global fertilizer market has reacted so strongly depends on the next data.
Russia and Ukraine are among the most important agricultural producers in the world. Russia is the world's largest wheat exporter. 32.9 million tonnes of wheat will be exported in 2021, equivalent to 18% of global trade. Ukraine is the sixth largest wheat exporter in the world. In 2021, it will export 20 million tons of wheat, equivalent to 10% of global trade.
As the world's most important fertilizer supplier, Russia currently produces over 50 million tons of fertilizers annually. It has accounted for 13% of global fertilizer production. According to the data of the United Nations Agricultural Organization, in 2021, Russia's export trade value of nitrogen, phosphorus and potassium fertilizers will rank among the top three in the world. The proportion is 15%-20%. The export volume of urea in 2020 and 2021 will be 7.292 million tons and 6.97 million tons respectively, accounting for 14% of the global urea trade volume.
In addition, in 2021 Russia is the world's largest exporter of natural gas and the second largest exporter of crude oil and condensate after Saudi Arabia. It is also the third largest coal exporter after Indonesia and Australia.
The instability of geopolitical conflicts has directly led to the rise in global commodity, food and energy prices. Coupled with the impact of the new crown epidemic, a series of problems in global food security have been exposed. In order to ensure the safety of China's food, it is imperative to ensure the supply and price of chemical fertilizers.
3). Food subsidies
On March 11, 2022, the Ministry of Finance announced that: in order to alleviate the impact of the increase in the cost of growing grain caused by the increase in the price of agricultural materials, stabilize the income of farmers, and mobilize the enthusiasm of farmers to grow grain. The Party Central Committee and the State Council have made decisions and arrangements, and the central government has allocated 20 billion yuan of funds to provide one-time subsidies to farmers who actually grow grains.
On May 22, 2022, according to the decisions and arrangements of the CPC Central Committee and the State Council, the market price trend of agricultural materials and the situation of agricultural production will be considered as a whole. The central government allocated a fund of 10 billion yuan to once again issue a one-time agricultural subsidy to the actual grain farmers. Support the production of summer harvest and autumn sowing, alleviate the impact of increasing expenditure on grain crops caused by rising prices of agricultural materials, and further mobilize farmers' enthusiasm for grain planting.
The target of the grain subsidy is the actual grain grower, which greatly reduces the production cost pressure brought by the increase in the price of agricultural materials to the grain grower. Thereby effectively protecting the enthusiasm of agricultural production fertilizer. Stabilize agricultural production and provide a solid bottom support for stable and increased grain production.
Since February, there have been frequent outbreaks of COVID-19 across the country. From March to May, the outbreak peaked. The main areas involved Jilin, Shanghai, Guangdong and other places, and many other areas were also affected. Then, under China's strong epidemic prevention and control policy, this round of epidemic began to decline after entering May. However, at this stage, industrial and agricultural production, logistics and transportation in many regions are inevitably affected to a certain extent.
At the time node around April, the mainstream areas have just turned green and fertilizer, and it is still early to prepare fertilizer in summer. So it has little effect on agriculture. However, the Northeast region is approaching the planting season (starting around May), and the poor logistics in April caused the Northeast season to be postponed to late April to early May, and there has been a concentrated rise in the market.
On April 22, the Ministry of Agriculture and Rural Affairs held a video scheduling meeting for spring ploughing production and "vegetable basket" products in key areas, emphasizing active response to the impact of the epidemic. Do a good job of spring agricultural production without delaying the farming season to ensure a bumper grain harvest and a stable supply of "vegetable basket" products throughout the year. With the transmission of policies, the overall spring agricultural production progress has basically ended smoothly. In some areas, the impact is obvious, and there is a short-term out of stock phenomenon. However, in the case of sufficient supply in the fertilizer market, the rising market has gradually returned to the mainstream level.
5). Zero tariffs on coal imports from May
On April 26, the Customs Tariff Commission of the State Council announced on the adjustment of coal import tariffs: in order to strengthen the guarantee of energy supply and promote high-quality development. The Customs Tariff Commission of the State Council has decided in accordance with procedures that from May 1, 2022 to March 31, 2023, a provisional import tax rate of zero will be implemented for coal. According to the schedule of the announcement, the provisional import tax rate of zero will be implemented this time for imported coal that was originally subject to the most-favored-nation tax rate of 3%, 5% or 6%.
The raw material for urea production is mainly coal or natural gas. China's energy situation of "rich coal, lean oil and little gas" determines that the production of urea is mainly coal-based, supplemented by natural gas. According to Longzhong data, the total domestic production capacity of urea exceeds 70 million tons, of which the coal-based process accounts for about 74%.
Although China's current coal reserves are still relatively large, the demand for coal is increasing year by year. As a result, China's imports are also increasing year by year, from 280 million tons in 2018 to 320 million tons in 2021.
The outbreak of the situation in Russia and Ukraine has caused substantial fluctuations in the global energy and food markets. In the future, related conflicts and sanctions will continue, and the tension between supply and demand in the energy sector will be difficult to ease for the time being. In this context, the active protection of imports is also based on the consideration of ensuring the supply and price of coal. Coal is the raw material for many important chemical and fertilizer products. Supply and price fluctuations in the coal market are bound to affect the fluctuations of downstream products. Fertilizers are related to food production. The premise of ensuring the supply of chemical fertilizers is that raw materials are sufficient and prices are stable. Therefore, it is urgent to ensure the supply and price of coal.
6). Shanxi's fixed-bed production capacity exits
On May 18, the Jincheng People's Government Office issued a notice on the issuance of the 2022 Action Plan for Jincheng Air Quality Improvement, Water Environment Quality Consolidation and Improvement, and Soil Pollution Prevention and Control. Part of the notice: All fixed-bed batch gasifiers are required to be phased out by the end of September 2024, of which 26 fixed-bed batch gasifiers will be phased out by the end of December 2022.
According to Longzhong data, Shanxi's total urea production capacity is 8.67 million tons, ranking third in the country. 90% of the capacity is a fixed bed process. That is, before the end of 2024, most of the installations will have to complete the technical transformation and upgrading. The first large-scale upgrading of urea production capacity began with the industry supply-side reform in 2016. In the past two years, as the proportion of fixed bed production capacity has dropped from more than 50% to about 30%, and with the alternation of new and old production capacity, the trend of total production capacity has slowed down in the past two years. At present, most of the fixed-bed production capacity has been transformed one after another, and the completion time node is basically concentrated in 2023-2024. It is estimated that the total domestic production capacity of urea will fluctuate in the range of 70-75 million tons in the next few years. It may be between 2023 and 2024. Due to the centralized alternation of old and new, the total output will fluctuate significantly.
7). The daily output of urea exceeds 170,000 tons
According to Longzhong data, the daily output of the domestic urea industry exceeded 170,000 tons on June 4, which is the first time since 2017 that the daily output of the industry has exceeded 170,000 tons. And in the next ten days or so, it basically ran around 170,000 tons, with a maximum of 172,000 tons. This is mainly due to China's supply guarantee policy, including but not limited to the supply of raw coal, and the reduction of production restrictions by industry policies. At the same time, considerable profitability of the urea industry, and the expected increase in agricultural demand. All further promote the realization of the industry's high start-up. More importantly, not only has Nissan reached a high level over the years, but the temporary control of China's urea exports has also increased domestic supply by about 2 million tons.
In general, under the guidance and support of a series of relevant national policies, the fertilizer industry has achieved results in securing supply and stabilizing prices, escorting China's stable grain production, increased grain production, and grain safety.
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