300,000 tons urea shortfall likely

KARACHI: Cut in gas supply to the fertiliser sector is expected to result in a shortage of 300,000 tons of urea, according to analysts.

Local urea prices have gone up by Rs75 per bag to Rs855- 860 after the government reduce the gas supply. The cut in gas supply to the fertiliser sector is part of the energy conservation plan announced by Prime Minister Yousuf Raza Gilani to tackle the power crisis. Currently, international urea prices have declined from $300-330 per ton during the first quarter of 2010 to $240- 270 per ton, which bodes well for the country as imports will cost lower, said BMA Capital analyst Omar Rafiq. International urea price declines have resulted from new production plants in the Middle East and news relating to possible export of urea by China.

The duration of the gas supply cut is estimated to be 100 days, starting from April 22. The government has cut the supply of gas from Sui network by 20 per cent which the Fauji Fertiliser Bin Qasim (FFBL), Pak American Fertiliser, Pak Arab Fertiliser and Dawood Hercules use for manufacturing and 12 per cent from the Mari network which Fauji Fertiliser Company (FFC), Engro and Fatima Fertiliser use.

FFBL briefing

The DAP production of Fauji Fertiliser Bin Qasim (FFBL) is expected to remain unchanged as the company has decided to run its plant at maximum capacity while cutting urea production by around 35 to 38 per cent or 72,000 tons, the FFBL informed in analyst briefing.

Further, the management indicated towards a potentially lower offtakes during the second quarter of 2010 as dealers have stocked up in advance, anticipating an increase in fertiliser prices. Offtake agreements are legal contracts between two companies regarding specific amounts of goods to be delivered from one company to another.

Published in the Express Tribune, May 12th, 2010.