KARACHI: Pakistan has surplus urea manufacturing capacity of almost 20% over and above the domestic demand of 5.8 million tons, which can be exported and fetch up to $250 million in foreign exchange for the country.
“Through improved utilisation of manufacturing units by providing them with re-gasified liquefied natural gas (RLNG), the country has been able to build urea inventory of 900,000 tons,” said an industry source on condition of anonymity.
“This presents an excellent opportunity for the country to make use of its excess urea and earn dollars,” he added.
The aggregate capacity of urea manufacturers in Pakistan is calculated at seven million tons. At present, the urea production hovers around 5.5-5.8 million tons, which is enough to meet domestic demand.
This below-optimum capacity utilisation is because of interruption or no supply of natural gas to the fertiliser plants, which include Engro Fertilisers’ base plant, Fatima Fertiliser and Agritech. The aggregate unutilised capacity of these three plants crosses one million tons per annum.
An official of a leading fertiliser company said domestic suppliers were very competitive and could export urea to the international market.
“It is imperative for the government to encourage the fertiliser industry to compete in the international market and generate foreign currency for the country through enhanced exports,” the official said.
Assuming exports of one million tons, the industry may easily generate $250 million in revenues. In addition to the increase in foreign currency revenues, the exports may also help in bridging the fiscal deficit as up to Rs5 billion worth of taxes can be collected on the profit made by the fertiliser sector from exports.
“In this regard, the textile industry presents a good model to replicate,” the official pointed out.
Based on locally available gas under the petroleum policy, the country was benefitting from significant foreign currency inflows, which were contributing positively and helping improve the balance of trade, he said.
“The fertiliser sector with its multibillion-dollar investments over the past decades is well poised to export value-added urea,” he suggested.
“Indeed, Pakistan accumulates urea inventory due to the seasonal impact of urea offtake,” said Arif Habib Limited’s fertiliser-sector analyst Tahir Abbas.
Seasonality means more urea sales when farmers were sowing, especially in November and December, than other times of the year, he added.
At the end of this year, Pakistan may be left with a surplus of more than 500,000 tons of urea, which can be exported with caution. “In case the country itself needs urea in future, it will have to import, which will not be a good bet,” he added.
In 2017, Pakistan had exported 700,000 tons of urea because it had been in surplus.
Abbas said there were some companies which had a huge quantity of urea left in first four months of the current calendar year as Pakistan’s Kharif season starts in April and hits peak in June. Until then, they carry on their inventory, which incurs a cost.
To some extent, it makes sense that instead of keeping the inventory and bearing the cost, the companies should export if the country is not creating any demand.
Published in The Express Tribune, November 26th, 2019.
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