Report Industry Investment Rating No relevant information provided. Core Viewpoints - In Q1 2026, urea prices continued the overall oscillatory upward trend. Supply increased with a rise in the urea operating rate to about 90% and a 8.2% year - on - year increase in production. Demand from agriculture maintained rigid growth, and industrial demand for urea in urea - formaldehyde resin and melamine increased due to export expectations driven by the Middle East situation. Export quotas had not been newly approved under the spring plowing supply guarantee [3]. - In 2026, the net new capacity of urea is expected to be nearly 3.62 million tons, with a capacity increase of over 3.8%. The operating rate may remain high, and the production increase may reach 4.9%. If the spot price continues to decline, the operating rate may be negatively affected, and the annual production increase may be reduced to 2.5 - 3.0%. Agricultural demand is expected to increase steadily by 3.5%, and compound fertilizer demand may increase by 6.9% due to export expectations [3]. - Domestic industrial demand may remain weak, but the export demand for melamine and urea - formaldehyde resin is expected to increase by 1.3 - 1.8% due to the expected rise in international furniture market prices. Urea export policies may be relaxed, and the export quota policy may continue, which is a major factor for the phased strength of urea prices. Urea is currently the valuation low in the industrial chain, and the increase in export demand for other products may drive the demand for urea indirectly [6]. Summary by Relevant Catalogs 2026 Q1 Market Review - In 2026, urea prices oscillated and rose, with the monthly spread decreasing and the basis rising slightly. Factors affecting the market included the continuous release of domestic production capacity, good demand during the agricultural peak season, the continuation of the urea export quota system, and the increase in the operating rate of melamine and the export demand for plates and furniture [11][13]. Capacity and Production - China's urea is in the stage of new production capacity release since 2020, with new devices using new coal gasification processes and having lower production costs. In Q1 2026, the newly put - into - operation capacity was 2.94 million tons, and the net new capacity was 1 million tons. It is expected that 6.99 million tons of new capacity will be put into operation in 2026, with a net new capacity of 2.97 million tons per year [18]. - According to the new production capacity plan, the new urea capacity may reach 14 million tons in the next 3 years, and the retired capacity is about 3 - 5 million tons, so the net new capacity may reach 9 - 11 million tons. In Q1, the capacity of the replaced fixed - bed process devices reached 1.94 million tons, and the proportion of the fixed - bed process decreased to about 15% [28]. - The cost of gas - based urea is under great pressure. The spot price of urea in 2026 is still significantly higher than the cash - flow cost of fixed - bed devices, while the gas - based urea devices are near the cost line. The international natural gas price has soared, and China's natural gas import dependence is 40%. In the long run, the planned natural gas supply also faces price - adjustment pressure, and export quotas may continue to be tilted towards gas - based enterprises [32]. - The operating rate of urea enterprises has remained high. Under the overall good profit of urea, the operating rate has long remained at an absolute high level of nearly 90%. After the increase in imported gas prices, the operating rate of domestic gas - based devices may face price - adjustment pressure [35]. - Urea production is expected to continue to grow in 2026. Although the speed of capacity release is slightly delayed, production capacity is still being steadily released. The production cost will be further reduced, and it is difficult for the overall capacity release to decrease due to less profit. However, since the operating rate has basically reached the limit of maintenance, the production increase in 2026 may be less than the capacity increase. It is estimated that the urea production in 2026 will increase by about 4.9% year - on - year [38][41]. Industry Chain and Price - The production of nitrogen - containing fertilizers has increased rapidly in recent years. In 2025, the production of synthetic ammonia is expected to increase by 34.5% compared with 2022. Although ammonium sulfate and ammonium chloride have a narrower application scope than urea, they still have certain substitutability when the price difference is large [48]. - After the geopolitical conflict, the prices of synthetic ammonia, ammonium sulfate, and ammonium chloride have risen significantly. The price increase of synthetic ammonia directly pushes up the production cost of urea, and the high export volume of synthetic ammonia is at a historical high. The increase in the export volume of ammonium sulfate and ammonium chloride may drive the potential demand for urea [57][66][70]. - The export increment of nitrogen fertilizers is greater than the production increment. Although the overall production of nitrogen fertilizers has increased by nearly 10%, the export volume has increased by 30 - 50%. In the context of tense geopolitical situations and rising energy prices, the export volume may increase even more, and the overall supply - demand situation of nitrogen fertilizers may become more tense [76]. Demand - **Agricultural Demand**: From 2020 - 2024, the grain sown area and output have increased. The government has introduced policies to increase the effective planting area, and the demand for urea in agriculture is expected to increase steadily by 3.5% in 2026. The demand for compound fertilizers is expected to increase by 6.9% due to the high international fertilizer prices and the growth of domestic agricultural demand [80][97][100]. - **Industrial Demand**: After the Spring Festival, the price of melamine rebounded rapidly, and the production increased by about 30%. The domestic demand for melamine and urea - formaldehyde resin is still weak, but the export demand is strong. It is expected that the demand for melamine and urea - formaldehyde resin for urea will increase by 1.3% and 1.8% respectively in 2026 [105][119][123]. Export - India's urea production may decrease by 5 - 8 million tons in 2026 due to the geopolitical conflict, and it is likely to increase its import demand. The new urea capacity outside China and India in 2026 is expected to be 4 million tons [125][135]. - Since March, the international urea price has risen by nearly 50% due to the geopolitical situation, but the direct export volume of urea has not changed much in the short term due to strict export policies. It is expected that the export volume of urea in 2026 will increase slightly to 5 million tons on the basis of 2025 [138][141]. Balance Sheet - The supply of urea in 2026 is expected to increase, but the growth rate of production may be less than that of capacity. The demand is expected to be slightly greater than the supply, and the low - valued urea in the industrial chain has the expectation of valuation repair [146].