Urea tariff triggers market bullishness

The urea export tariff policy, which has long been speculated in the industry, surfaced this week. The published tariff implementation plan for 2013 did not differ significantly from previous rumors. The urea export still distinguishes between light and high season tariffs. The peak season is set for 1-6 months, November and December, and they are levied at a 77% duty. In the off-season from July to October, a tax rate of 2% is enforced. If the declaration price exceeds the base price of 2260, RMB/ton, calculated as tax rate=(1.02*export price-base price)/(export price+base price), which is the formula that the base price does not include tax. Also from the NDRC's tax rate = (1.02-base price / export price) * 100% of the calculation formula in the variant. Through formula calculation, when China's FOB price is 370 US dollars / ton, the ex-factory price of domestic enterprises can be calculated to 2110 yuan / ton; 380 US dollars / ton corresponding ex-factory price is 2140 yuan / ton. Faced with the adjustment of tariffs, the industry has always maintained a high degree of concern, after all, the reason for this round of price increases is that manufacturers have started to speculate on tariffs.

Tariff Adjustment Supporting Price Increases By comparing the ex-factory prices before and after urea tariff adjustments, it can be concluded that at the same FOB prices, the export profit per ton of urea will be at least 100 yuan more than this year. This clearly proves that the adjusted tariffs are more conducive to the export of urea and at the same time stimulate the enthusiasm of traders. Although the window period is still from June to October, it is undeniable that the 2% tariff is tempting. Therefore, if it is said that exports to Hong Kong will be advanced 2 months in advance, next year it is very likely that any distributor will consider it appropriate to set a price in advance. This may also serve as a good support for the urea price at the beginning of the year. At least from the current offshore price of US$385/ton in China, the ex-factory price of urea can still reach 2,120 yuan/ton. If companies see this, they can still continue to speculate on tariffs to raise prices.

Looking calmly at the export tax rebate The urea tariff just announced is undeniably a support for the current market, but after all, this favorable factor has been speculation for a long time, and the current domestic urea price has risen sharply. For the urea price at this time, even if traders have the will to prepare in advance, they will be cautious. Moreover, in the Indian bid last week, Yuzhene’s bid price has fallen below US$370/tonne. If China bids at a lower price, the export price will undoubtedly be lower than the current domestic sales price. If this is used as a benchmark, it is believed that traders will certainly not rush to purchase. In particular, the annual international urea price is lacking in reference. From the historical data, we can see that China's FOB price of urea from June to October 2009 was US$260-315; in the same period of 2010, it was US$240-320; during the same period of 2011, it was US$460-500; from June to October in 2012, 370-380 US dollars. In short, the benefits of tax cuts for exports are only set in the short term. It is still necessary to observe and analyze international demand next year to make judgments on the future price of China's urea window, and finally make plans.

Faced with the policy of reducing taxes on urea exports, the industry has a different voice: Some people have previously said that restrictions on urea exports have been recognized, there is no need to adjust; Some people think that for absolute understanding of resource production, urea should be absolutely prohibited; In the supply and demand of the domestic market and price considerations, I did not expect that the urea export tariff would fall to such a low point. However, since the policy is so, manufacturers can only adapt to the market. This tariff adjustment is likely to stimulate the price to rise again in the short term. With reference to the current large number of orders from manufacturers, the high price is expected to continue until mid-January. With the favorable export policies, the overall operating rate of domestic urea companies will further increase. At the same time as production is released, the issue of excess supply and demand will become the object of price games. Therefore, the lack of regularity in the ups and downs of the market in the later period should not be blindly followed. "Opportunity is lost, but don't eat it."