Essential Fertilizer Trends Weekly (Part 8 of 11)
The impact of China’s urea prices
When coal prices fall, they make Chinese nitrogenous fertilizer producers much more competitive, which could negatively impact global prices. But fertilizer demand in China can also negatively or positively affect average urea prices in China, which in turn affects global prices. So it’s also important to follow urea prices in China. Low prices and increased output will negatively affect global urea prices—especially when the export taxes lower during the off-season (July to October).
According to the China National Chemical Information Center, the average selling price of urea stood at 1,703 renminbi per metric tonne on October 25. While prices haven’t risen a lot, they have stopped falling since March. Prices have stayed around current levels for more than a month now.
Domestic farmers, higher coal prices, and lower output had supported urea prices until March this year. But since then, lower coal prices, increased capacity expansion, and weaker purchases sent fertilizer prices from 2,250 renminbi per metric tonne to as low as 1,698 renminbi per metric tonne in mid-October.
Prices likely to turn up
But with higher coal prices, and the return of Chinese farmers, we’re likely to see urea prices in China move higher towards the second quarter of next year. Rising food inflation in China, as well as higher economic activity, should support farmers’ purchase and application of nitrogenous fertilizers. Over the past three years, urea prices in China have risen from late October to the first or second quarters of the following year.
Positive support on fertilizer producers
Higher urea prices in China could alleviate downward pressure on global fertilizer prices, which would support earnings and cash flow. This bodes positively for nitrogenous fertilizer producers such as CF Industries Holdings Inc. (CF), Agrium Inc. (AGU), Potash Corp. (POT),´ and Terra Nitrogen Company LP (TNH). The Market Vectors Agribusiness ETF (MOO) will also benefit.
Browse this series on Market Realist:
- Part 1 - Essential Fertilizers Weekly: Why the bottom line is essential
- Part 2 - USDA reports crop condition above 60%, negative for fertilizers
- Part 3 - Why corn prices are down to $4.30 a bushel—but likely priced in