China Urea Market Under Pressure As Supply Surges And Prices Weaken

China's urea market has come under renewed pressure from expanding production capacity, with prices trending lower despite efforts to ease supply pressure through export policy adjustments. Although China relaxed urea export measures at the end of May, international prices weakened amid easing tensions in the Middle East and softer demand, narrowing export profit margins for producers. As of June 30, the average urea market price in China stood at 1,834.90 yuan per tonne. Entering July, seasonal demand from top-dressing applications for corn and other crops provided some support, limiting further declines, but high daily output and elevated inventories continued to weigh on market recovery.

High Inventories Continue To Pressure Market

Supply pressure remained the key challenge for China's urea market in the first half of 2026. Urea production capacity continued to expand, with output expected to reach 76.5 million tonnes in 2026, up around 6.2% year on year. Meanwhile, operating rates remained high, with daily production reaching 217,100 tonnes as of June 26.

Analysts said that new capacity has mainly been concentrated in resource-rich regions such as Northwest China, with many facilities using low-cost coal gasification technologies. Even under weak profitability conditions, producers have shown limited willingness to reduce operations, keeping overall supply at elevated levels.

Demand, meanwhile, has remained relatively weak. Although agricultural demand has maintained a certain level of stability, compound fertilizer operating rates continued to decline during the first half of the year, while downstream purchasing remained slow. Limited consumption growth has prevented urea demand from providing strong support to the market.

Despite the release of export quotas at the end of the second quarter, declining international prices and export guidance price restrictions slowed shipment activity, leaving domestic inventory pressure largely unresolved. Data showed that total inventories held by Chinese urea producers reached 1.1336 million tonnes as of June 24, up 4.4% from the previous period.

An analyst said the market is facing a structural imbalance, with companies appearing to have sufficient orders but lacking effective downstream circulation. As demand channels remain weak, large volumes of urea have accumulated across midstream and upstream distribution networks, slowing inventory reduction and increasing pressure on producers.

Export Window Opens But Benefits Fade

Changes in export policy became the biggest market variable for China's urea sector in 2026, but shifting international conditions weakened the expected impact.

After export quotas were introduced at the end of May, market expectations improved temporarily. However, international prices declined in June as demand weakened, tensions in the Middle East eased and China's export window reopened.

"International prices accelerated their decline in June due to lower global demand, easing Middle East tensions and the opening of China's urea export window," an analyst said.

With narrowing domestic and overseas price differences and repeated low-priced bids in international markets, Chinese producers have seen limited export profitability, delaying expectations for significant shipment growth.

A fertilizer company executive said that the actual benefits from the latest export opportunities have been limited and have not been enough to offset previous operational pressures. Data showed that total profits in China's nitrogen fertilizer manufacturing industry were about 2 billion yuan in 2025, down 75% year on year, while the sales profit margin stood at 1.0% and nearly 47.1% of companies reported losses.

Analysts said future export policy developments, particularly whether export guidance prices will be adjusted and the scale of any changes, will remain a key factor influencing short-term market trends.

Weak And Stable Market Pattern Expected In Third Quarter

Entering July, China's urea market moved into the traditional summer top-dressing season. Corn fertilization demand in North China and the Huanghuai region, along with rice fertilizer demand in southern China, provided some support to spot markets.

However, analysts said the overall market remained cautious. Although downstream demand showed some improvement, support was insufficient, while slower export orders continued to limit market confidence and purchasing activity.

On the cost side, the average delivered price of anthracite coal remained around 1,150 yuan per tonne, while mainstream delivered prices for gasification coal were around 900 yuan per tonne. Analysts said fixed-bed production processes have already fallen into losses, while coal-water slurry gasification facilities are operating with limited margins. Cost pressures have reduced producers' willingness to make further significant price cuts.

Several market research institutions expect China's urea market to maintain a narrow and weak trading range in the third quarter, with limited upward momentum and restricted downside potential. Although agricultural demand will provide some support, supply-demand imbalances could become more visible after August as seasonal fertilizer demand declines if exports fail to increase significantly before mid-July.

Analysts said current prices are approaching the cost line for some coal-based producers, giving factories an incentive to defend prices. In addition, planned maintenance at some production facilities during the third quarter may temporarily ease supply pressure.

Export execution remains the most important factor affecting urea prices in the third quarter. Analysts said that if export policies continue to provide support and overseas shipments increase alongside domestic demand, the market could strengthen temporarily. However, if exports proceed only gradually, pressure on upstream producers will persist, keeping China's urea market under seasonal weakness.