After showing a historic jump to USD 495 per tonne in October, Urea spot prices in China have eased back to USD 400 per tonne levels in December. The price fall comes against the backdrop of reduced upstream rates and better product availability with the local producers. With the Chinese government ramping up efforts to ensure continuous supply of coal, natural gas and other raw materials used in the fertilizers sector, buyers are optimistic that the production levels of urea producers should improve in the H1 2022, and the prices should fall back to levels seen in the first half of this year. As per Zhengzhou Commodity Exchange (ZCE), Urea Futures for December contracts oscillated between $380/mt and $405/mt during the week ending 13^th December. At present, the profit of Natural Gas derived Urea stands between $95-92/tonne. The energy crunch which forced some Chinese provinces to ration electricity since the end of Q3 made it difficult for the country’s Urea producers to enjoy considerable margins.

The operating rates and inventory levels of China’s Urea producers have been assessed still lower over the previous month. However, lesser export volumes have kept the availability higher than the last few weeks. Downstream agricultural demand has improved and industrial demand from melamine industries is supported by the increase in the plant operating rates. The price of feedstock natural gas has sharply reduced in the latest weeks driven by the forecasts for warmer than expected weather. The January futures of Natural Gas were trading around $3.839 on NYMEX down by about 6.25 per cent in the first week of December.

It is expected that Urea prices in China will continue to remain rangebound and the trend will be slightly weaker in the coming weeks. Local supplies are still in recovery phase from the dual control impacts while global supplies would take some more time to get back to norm as China and Russia, two of the biggest fertilizer producers, have restricted exports to ensure supplies for their local consumers.

As per ChemAnalyst, Urea is crucial to the global fertilizer industry, so the rise in global prices have eventually affected the overall cost of production of food across the globe. The United Nations Food and Agriculture Organization’s index of food prices are already at its highest level within a decade. Lowering Urea prices and better productivity in China are likely to bring some ease to the local farmers who have been scrambling for fertilizers since more than a quarter now.