Fertiliser sector making a comeback

Companies set to take advantage of recovery in international prices


Our Correspondent September 28, 2017
A farmer spreads fertiliser in his rice field. PHOTO: REUTERS

KARACHI: The fertiliser sector seems to be making a comeback as sales in August 2017 stood at 948,000 tons, up 65% year on year when compared with August 2016, according to the National Fertilizer Development Centre (NFDC).

Off-take has improved on the back of a persistent support of the subsidy package and an inspiring kharif season.

The increase is also a 180% improvement on a month-on-month basis.

Moreover, imported urea sales also depicted an improvement (65,000 tons sold in August 2017 compared with 46,000 tons in July 2017), due to their lower prices - 15% lower than local urea. Di-ammonium phosphate (DAP) sales on the other hand registered a decline of 38% year on year and 71% year on year to 83,000 tons in August 2017.

On a cumulative basis, total fertilizer sales posted an encouraging growth of 26% year on year to 6.04 million tons during the first eight months of calendar year 2017.

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Moreover, the recent recovery in international urea prices (up 60% since it hit a low of $163 per ton in June 2017) along with normalisation of inventory level (urea inventory currently stands at 653,000 tons compared to 1.15 million tons in August 2016) makes room available for local manufacturers to reduce the prevailing discount offerings.

Companies would also be able to further reduce inventory levels by exporting excess urea at better prices.

Hope in rising international prices

Having lost 11% calendar year to-date, the fertiliser sector has remained under considerable pressure on account of weak dynamics, lower commodity prices and depressed farmer incomes.

However, a recent recovery in international urea price that has surged to $260 per ton presents a lucrative opportunity for local manufacturers to export the remaining allocated quota of urea at decent margins and further ease down current the inventory levels (urea inventory already came down significantly in August 2017 by 43% month on month).

Earlier, the Economic Coordination Committee (ECC) of the cabinet allowed exports of 600,000 tons of urea with an extended deadline of October 2017.

In this regard, local manufacturers have so far exported 246,000 tons out of the allocated quota. In this backdrop, with remaining quota of 354,000 tons, export off-take for Fauji Fertilizer Company, Engro Fertilizer, Fatima and Fauji Fertilizer Bin Qasim works out to be 142,000, 109,000, 44,000, 28,000 tons, respectively, based on current market shares.

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Assuming urea is exported at the international price of $260 per ton, Engro Fertilizer stands to benefit the most on account of the lowest cost structure and a healthy market share. Its share price has also rallied in recent times, climbing over 12% to close at Rs63.26 at close of trading on Wednesday.

Published in The Express Tribune, September 28th, 2017.

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