In a bid to regain the local market, Fauji Fertilizer Company (FFC) has reduced urea prices to make its fertiliser competitive against cheaper imports.
The fertiliser manufacturer cut down prices by 9% to Rs1,650/bag on Thursday, bringing the difference between the local and imported fertiliser to Rs50 per bag.
Local fertiliser manufacturers have so far been second best to their imported counterparts in 2012 as the price of imported fertiliser is subsidised by the government.
FFC’s unsold fertiliser stock stood at a massive 250,000 tons at the end of March, according to latest data.
In line with historical trend, other market players are also expected to follow suit. The reduction in price will make a huge impact on profit margins. Engro Fertilizer’s will be hit the most as earnings will shrink by 33% while Fauji Fertilizer Bin Qasim earnings will drop 8% if they follow suit and drop prices, according to InvestCap analyst Hasan Raza.
The government’s reliance on imports has eased the demand of the commodity for now, however, this will have a huge hit as far as the country’s fiscal management is concerned as the fertiliser import bill reached $848 million during the first seven months of the current financial year against a total of $300 million during same period last year.
Going forward, urea prices may face more pressure from an expected increase in gas prices from July 2012 and potentially higher Gas Infrastructure Development Cess charges. The price change will be effective from today (Friday).
Published in The Express Tribune, May 11th, 2012.