What Are The Major Factors Which Are Affecting Urea Price

Urea is a chemical produced by the body of humans and various other animals after the body metabolizes protein, and is the first every natural compound that was synthesized artificially from inorganic compounds. There are multiple uses of urea after synthesis; ranging from raw material for synthesizing other chemicals, to feedstock, fertilizer, resins, plastics, and other commercial products.

The majority of the global production of urea is utilized for fertilizer and related products as the nitrogen in urea makes it water soluble making it effective as a fertilizer. The presence of nitrogen also makes urea a good choice for feedstock as it promotes animal growth and is available at relatively cheap prices. Urea is also used as a component in plastics, hair coloring products, skincare products and in washing machine detergents.

There are various factors affecting the price of urea:

Cost of Raw Materials

Synthetic urea is created from ammonia and carbon dioxide under conditions of high heat and pressure. To produce the ammonia, generally either natural gas or coal is used, and accordingly the prices of natural gas, coal and the synthesis process affect the price of the final product of urea. Both natural gas and coal are non-renewable resources and the prices are bound to fluctuate based on the country of production.

To meet the costs of producing urea, manufacturers are setting up plants in areas with natural gas reserves or coal supply so as to reduce costs. Due to the wide applications of urea and the demands of the agricultural industry, the production of urea is high.

Demand & Supply

The global supply of urea fertilizer was estimated at 215.97 MMT (Million Metric Tons) in 2018, a significant increase from the 188.17 MMT supply in 2014, driven by the increase in demand from the agricultural sector. Increase in global population has led to an expansion in the need for food production from agriculture and meat, both of which utilize urea, in the forms of fertilizer and feedstock respectively.

Globalization allows the worldwide sale of urea, so producers can reach potential markets bypassing earlier distance restrictions. Although the supply of urea has been increasing at a steady rate, higher demands are likely to affect the price of urea.   

Global Trends

The global urea forecasts indicate that the production market is set to cross $65 billion by 2021-2022. Urea fertilizer prices are stabilizing after years of weakness, influenced by strong Indian imports combined with low exports from China. Although the production capacity of urea has increased in the US, it would likely not match the decrease in exports from China, which took place due to higher coal prices and environmental regulations.

Europe, meanwhile, is witnessing a fall in demand for urea as countries look for alternatives to urea such as N-fertilizers which are more environment-friendly in comparison to urea.

The synthesis of urea marked a landmark in scientific development as a natural compound with multiple uses was made inorganically. Its various applications have further gained in importance, especially for the agricultural sector where urea plays an important role in fertilization. However, due to the method of synthesis, which relies on non-renewable resources, the price of urea will inevitably be volatile, based on the raw materials.