China's urea industry 'at a turning point'
The research found that China is expected to remain the world’s largest urea producer and a major exporter in the medium-term, with producers and traders expected to continue exporting two to four million tonnes of urea annually.
Urea is a nitrogen-based fertiliser and is considered a necessary input for agricultural production. Nitrogen is a macro-nutrient which farming enterprises apply to soils and plants to increase productivity. Urea accounts for around two-thirds of nitrogen fertiliser applications globally.
Rabobank Director Food & Agribusiness Research and Advisory, Adam Tomlinson, commented, “At the same time, China’s urea industry is facing ongoing challenges of export competiveness and the ability to execute global expansion plans.”
Rabobank’s research found that market forces are shifting the structures of China’s urea industry from both a cost and consolidation perspective.
Mr Tomlinson continued, “Competitive cost pressures in the domestic and international urea markets have encouraged major urea producers to revise their business models. They are adapting their production infrastructure, product portfolios and sales distribution channels to capture significant market share and participate in urea exports on an opportunistic basis.
“At the same time, new urea production capacity has shifted upcountry to counties/ provinces more closely aligned with raw feedstocks. China’s urea industry is also consolidating, resulting in the formation of an increasing number of domestic producers generating world-leading product volumes.”
Rabobank recommended that major urea producers need to decide whether to invest locally for domestic growth or invest abroad to strengthen their participation in global markets.
Mr Tomlinson concluded, “China’s urea producers that stay domestic will need to focus on urea consumption in line with domestic crop productivity. As demand for agriculture products continues to rise and the farming sector continues to modernise, the fertiliser industry (including urea) in China will play an important role in achieving sustainable self-sufficiency in agricultural production.”
“On the other hand, a key future strategy for urea producers in China that have bold global market ambitions is the ability to invest in overseas production assets to achieve year-round trading options to better service their international trading partners.
“If China urea producers do expand internationally, this will have major implications for suppliers in other markets, given China is already the largest urea producer by a significant margin,” he said.
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