Fertiliser sector profits grow 70% in 2010

Fauji Fertiliser Bin Qasim and Engro Fertiliser front runners.

KARACHI: The fertiliser sector marked 2010 as an eventful year with a substantial increase of 70 per cent in profitability on a yearly basis, according to a report prepared by Summit Capital.

The report is based on the analysis of top four fertiliser companies namely Fauji Fertiliser Company, Fauji Fertiliser Bin Qasim Limited (FFBL), Engro Fertiliser and Dawood Hercules.

Net profit of the sector rose mainly due to higher fertiliser prices and one-time impairment loss on investments of Rs3.79 billion booked by Dawood Hercules last year, said Summit Capital analyst Muhammad Sarfraz Abbasi.

Engro and FFBL outperformed the sector as these grew by 73 per cent and 72 per cent, respectively on a yearly basis in 2010. On the other hand, Dawood Hercules switched to a net profit of Rs3.25 billion from a loss of Rs1.78 billion in 2009.

Fertiliser sales and prices

Sales of urea – a type of fertiliser – fell three per cent during 2010 but retail prices averaged around 11 per cent higher at Rs853 per bag during the year. Similarly, DAP, another type of fertiliser, recorded a substantial decline of 24 per cent in sales, mainly due to devastating floods during the year. However, average prices improved to Rs2,675 per bag in 2010 compared with Rs2,032 in 2009.

Outlook

The country is currently faced with a wide gap between demand and supply of urea owing to gas curtailment of up to 20 per cent by the government, said the analyst. Thus, the government is eyeing import of fertilisers to bridge the gap.

Due to the ongoing gas curtailment, local players raised urea prices to cover their production losses. However, any further deterioration in gas supply can force players to further increase prices as urea is cheaper in the local market than the international market, said Abbasi. As far as affordability of farmers is concerned, an increase in wheat support price by the government has improved purchasing power of the farmers, he added.

Published in The Express Tribune, February 26^th, 2011.