Since China is one of the largest producers and consumers of nitrogen fertilizers, the average price of urea in China is an important number for investors interested in fertilizer stocks and ETFs such as CF Industries Holdings Inc. (CF), Terra Nitrogen Company LP (TNH), CVR Partners LP (UAN), Agrium Inc. (AGU), and the VanEck Vectors Agribusiness ETF (MOO).
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Urea prices in China
While urea prices in the Caribbean and Corn Belt are closer to what urea producers in the United States earn, they’re subject to China’s government export tax, shipping prices, and regional supply and demand balances. The export tax, shipping prices, and regional supply balances do change over time. As prices in China currently set the floor price for global urea prices, it’s important to look at what’s happening to prices in China.
Urea prices in China tend to go through a seasonal pattern, generally rising from November to the next calendar year’s first or second quarter, as farmers return to purchase fertilizers before plantation. Prices generally fall after demand weakens. On March 21, 2014, the average price of urea in China stood at 1,657 renminbi per metric tonne, which remains in a downtrend after hitting a peak of around 1,744 renminbi per metric tonne in January 2014. This is a decline of 24% from roughly the same period last year.
If urea prices in China continue to fall and this doesn’t reflect in share prices yet, nitrogen fertilizer producers will be negatively affected. So what’s contributing to this weakness? Find out in the next part of this series.