April 07, 2020

Next year, Inner Mongolia urea "mark" Northeast

The northeast market has always been the “wind vane” of winter storage prices. Once the market starts, its market price can guide urea companies in Hebei, Shanxi, and Shandong to deliver goods to the northeast. This year's anomaly is that the twelfth lunar month is approaching. However, distributors in the three provinces in eastern China are still not seen preparing fertilizer. Objectively speaking, only a handful of large agricultural resources companies have purchased. The author believes that the dealer's lack of storage may not be true, because the current urea source staring at the Northeast has a new force, the market has a lot of variables - the new capacity of urea in Inner Mongolia.

Around 2009, many urea companies began to look for low-cost routes because of the impact of the cost downside of the urea industry. After the concept of using lignite as an alternative to anthracite coal was determined, Inner Mongolia’s ancient relying on its resource advantages has won investment in four urea projects. They are: Inner Mongolia Gonalun Group Co., Ltd., Guodian Chifeng Chemical Co., Ltd., Datang Hulunbeier Fertilizer Co., Ltd., and Hulunbeier Jinxin Chemical Co., Ltd. Recently, the author suddenly realized that he almost ignored the impact of these four “time bombs” on the market. Through the understanding that: the two companies located in Hulun Buir are planning to put into operation in January 2012, of which Jinxin chemical plant has been trial run, although there are problems with gas, but the progress can be described as imminent. After the completion of these four urea companies, new production capacity will reach 2.14 million tons.

In this way, even if only two companies are put into production next year, the production capacity will be directly increased by 1.2 million tons. For the Inner Mongolian market, where supply and demand are already saturated, excess production capacity will undoubtedly flow out of the province. Hulunbeier is located above the three provinces of East China, and has direct access to Daqing City, Heilongjiang Province, and has the conditions to transfer to Jilin and Liaoning. This will determine that the Northeast market will bear the brunt, and the sales area will also cover the entire Northeast region.

Looking at the situation of urea in the three provinces of Heihe, Jilin and Liao, the existing capacity of the urea companies in the three provinces totals 391 million tons, and the demand is about 4.3 million tons. The difference of this 400,000 tons of demand, coupled with a small amount of industrial demand, was once the market share that urea companies in Hebei, Shanxi, and Shandong provinces competed for. Due to the problem of transport distance, it is necessary to ship goods in advance. These provinces outside the province often give more favorable conditions for Northeast distributors to stimulate purchases. Both buyers and sellers are waiting this year.

In the case of Inner Mongolia, which can determine the 1.2 million tons of urea put into operation next year, it will be enough to break the previous mode of operation in the Northeast. Perhaps it is difficult for these new plants to establish brand advantages at a time. However, due to the lower production costs, the price advantage is obvious. With this, it will be able to gain a foothold in the future market competition. In Inner Mongolia and Xinjiang, it is precisely because of the low price of coal resources that it has won the favor of enterprises, and the industry changes resulting from the relocation of the main producing areas are unstoppable. So, the survival of downstream dealers often lies in seeing changes in the industry earlier and adjusting business strategies in a timely manner. Judging from the abnormal market since the urea market entered the off-season this year, it may be exactly the opportunity for merchants to “practice” and needs to be faced with caution.

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