As the world's largest producer and consumer of urea, China's urea industry faces dual transformations in 2025: accelerated capacity expansion and policy adjustments.

The sustained growth on the supply side contrasts sharply with structural shifts in demand. Compounded by profound changes in the global trade landscape, the industry is undergoing a critical transition from scale-driven growth to quality-focused competition.

Supply Side: Accelerated Capacity Release and Differentiated Competitive Landscape

China's urea industry reached new heights in capacity expansion in 2025. This trend began with the new capacity deployment cycle following the conclusion of supply-side reforms in 2020, characterized by technological upgrades.

Between 2022 and 2024, China's urea output increased by a cumulative 9.58 million tons, growing at a rate of 17%. This not only far exceeded the global growth rate of 9% during the same period but also contributed over half of the global production increase. Within this total increase, the vast majority originated from coal-based urea, though significant internal differentiation emerged: fixed-bed production declined, decreasing by 1.25 million tons in 2024 compared to 2022; fluidized-bed production remained largely stable, with only a marginal increase of 40,000 tons. Gas-based urea production grew by a cumulative 1.2 million tons over the past three years, accounting for 13% of the total increase: natural gas-based urea production rose by 650,000 tons; coke oven gas-based urea production increased by 550,000 tons.

This capacity release directly translated into output growth. From January to August 2025, national urea production reached 48.135 million tons, a year-on-year increase of 13.38%. Estimated September output stands at 5.71 million tons. If 2024's operating rate is maintained, annual production could peak at 71 million tons.

Notably, the industry's enhanced supply capacity is accompanied by technological upgrades. New coal gasification processes are gradually replacing outdated facilities, with bituminous coal-based urea production capacity reaching 40.19 million tons, driving down overall production costs.

Demand Side: Agricultural Essential Demand and Export Strategy Adjustment

Domestic demand remains the core pillar of urea consumption, with the agricultural sector accounting for 65.35% and exhibiting pronounced seasonal patterns.

The traditional peak fertilization season spans March to October: Northern wheat top-dressing begins in early March, followed by rice fertilization in Northeast China in May. Corn in the north and rice in the south reach peak top-dressing demand in June-July, while Northern wheat base fertilizer demand takes over in September-October. This rhythm directly dictates urea consumption's monthly fluctuations.

Typically, urea consumption in March and April accounts for approximately 20% of annual agricultural usage, June and July for about 50%, and September and October for roughly 20%.

From January to August 2025, domestic urea consumption reached 47.3019 million tons, marking a 10.86% year-on-year increase. While maintaining growth momentum, elevated compound fertilizer inventories (sample enterprises held 826,200 tons) amid agricultural price volatility prompted widespread adoption of “production based on sales” strategies. This approach, characterized by small-volume and short-term urea procurement, suppressed concentrated demand release.

The export market underwent a strategic shift from strict control to targeted regulation. China's role in global urea trade is evolving from a “volume exporter” to a “strategic regulator.” This transformation addresses challenges posed by global supply chain restructuring while creating opportunities for technological advancement and quality improvement within the industry.

From a policy evolution perspective, in 2024, China prioritized domestic supply, resulting in urea exports of only 250,000 tons. Starting in 2025, China implemented a urea export quota system, issuing four rounds of quotas throughout the year with a total volume approaching 5 million tons. Each quota release provided some support to the market, with the fourth round issued in November becoming the primary driver of the price surge at that time.

Driven by policy, China's urea export structure underwent further restructuring: - Aid-based exports prioritized fertilizer supply for agriculturally underdeveloped nations like Pakistan and Myanmar; - High-end markets saw increased urea supply for automotive use in South Korea and Japan; - Trade models leveraged technical barriers under new tariff rules for packages under 10kg to achieve differentiated exports.

Market Performance: Price and Inventory Pressures Amid Supply-Demand Looseness

The mismatch between supply expansion and weak demand directly manifested in price and inventory trends.

From a fundamental perspective, the urea market in 2024–2025 exhibited an overall downward trajectory with fluctuating weakness. This was primarily driven by a prolonged “strong supply, weak demand” pattern, compounded by the impact of export policy adjustments.

Urea prices experienced phased fluctuations in the first half of 2024 but entered a sustained downward trajectory in the second half. The downward trend continued into 2025, with prices repeatedly hitting annual lows and even three-year troughs.

This pattern was particularly pronounced in Q3 2025: Industry operating rates rebounded above 81%, with daily output surpassing the 200,000-ton threshold. However, downstream buyers remained reluctant to purchase due to a “buy on the rise, not on the dip” mentality, keeping procurement activity persistently sluggish.

Even as mid-to-low-priced supplies increased in the market, corporate order intake remained lackluster, further driving sustained inventory accumulation.

Despite increased low-priced supply in the market, corporate order intake remains sluggish, driving sustained inventory buildup. Elevated stockpiles intensify price pressure, with spot prices for small- and medium-granule urea in major regions twice approaching the cost line.

In 2025, China's urea industry stands at a crossroads between scale expansion and quality enhancement.

On the supply side, 6.4 million tons of new capacity will gradually come online, intensifying competition. Technological upgrades and cost control have become critical for corporate survival.

On the demand side, agricultural essential demand provides fundamental support, but weak industrial demand recovery and export policy constraints create dual pressures.

Market-wise, the supply-demand imbalance is unlikely to shift in the short term, with prices expected to fluctuate near the cost line.

As an integrated internet platform providing benchmark prices, on December 24th, the benchmark price of urea, according to SunSirs, was 1755.00RMB/ton, an increase of 5.88% compared to the beginning of the month (1657.50 RMB/ton).

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