Global Urea Prevails Divergent Trend Amidst Supply Disruptions and Seasonal Lull

The first week of July 2024 saw a divergent pattern in the global Urea market. While prices increased marginally in North America, a decrease in China was observed. The main causes of this price increase in the North American market are Hurricane Beryl's forced closure of some Urea facilities and a lack of material in the region, which has led to a decrease in production activity. On the other hand, due to a decline in demand from downstream sectors, the Chinese Urea market crashed during that time.

The period in review saw a notable upswing in the North American Urea market. The growing disparity between supply and demand is what is mostly responsible for this price increase. Massive flooding and transportation infrastructure disruptions that followed the effects of tropical storms severely hampered supply chains and operations. Further interfering with manufacturing operations throughout the region were extended power disruptions brought on by Hurricane Beryl. Adding to these difficulties, at the start of the week, two of Texas's largest feedstock ammonia-producing facilities—YARA/BASF and OCI—which have monthly production capabilities of roughly 42,452 metric tons and 18,742 metric tons, respectively, declared events of force majeure. A lack of feedstock led to reduced operations worsening the supply situation of Urea in the North American market.

At the same time, Urea has continued to be in moderate demand in both the domestic and international markets over the past few weeks. Favourable weather patterns, especially in the Western maize Belt where periods of intense rain and thunderstorms have produced ideal conditions for maize planting, were blamed for this strong demand of Urea.

However, the Chinese Urea market displayed signs of bearishness. By the end of the week, domestic inquiries for Urea were notably sparse, signalling a period of relatively low demand. This subdued domestic interest for Urea was compounded by a restrictive international market, where demand remained lacklustre. Contributing to this restricted international demand were significant delays in deliveries, primarily due to ongoing port congestion.  The limited uptick in domestic demand was largely attributed to fruit producers concluding their summer crop treatments, which temporarily spiked their need for fertilizers. Despite this localized increase in demand from the agricultural sector, the overall global market for fertilizers did not experience a corresponding rise. The persistent congestion at major ports has further disrupted the supply chain, hindering the timely distribution of Urea and contributing to the overall bearish sentiment in the market. This scenario reflects a broader trend of constrained international demand, with logistical issues exacerbating the mismatch between supply and demand.

Furthermore, statistical data collected from multiple market sources show that China's production rate of nitrogen-based fertilizers, which includes Urea, is still erratic, averaging between 177,000 and 178,000 tons per year.