Pakistan's fertiliser sector builds inventory of 1m tons
Companies look to govt for permission to export, fear their pricing power will suffer
A farmer spreads fertiliser in his rice field. PHOTO: REUTERS
KARACHI:
Pakistan's fertiliser sector has built up urea inventory of one million tons, which is going to weaken the pricing power of the companies if the government does not allow them to export.
As per the latest data released by the National Fertiliser Development Corporation (NFDC), the sale of urea surged 2.2 times to 381,000 tons in November as compared to 119,000 tons in the previous month. On the other hand, DAP offtake showed comparatively muted growth of 49% on a month-on-month basis in the period under review.
"Overall nutrient offtake showed an upward growth of 80% month-on-month as better rains and availability of water support higher demand of nutrients in Rabi sowing season," stated a report by Aba Ali Habib Securities.
Despite this improvement, the sector has piled up a huge stock, which will force it on the back foot and push down prices as the demand inside the country does not match the extensively high production.
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This year the sector has accumulated one million tons of urea. In November 2018, the inventory was only 150,000 tons, which means an increase of almost seven times, said Sherman Securities analyst Saqib Hussain.
At the beginning of 2019, the country faced a shortfall of urea due to the low availability of natural gas.
In a bid to facilitate the fertiliser sector, the government allowed producing urea with LNG, which comparatively costs higher than natural gas available in Pakistan, according to the analyst. The LNG price is attached to the dollar price which is why the government had to give subsidy, he added.
The government gave a subsidy of Rs650 to Rs700 per mmbtu, which translated into Rs800 per urea bag of 50kg.
Cumulatively, the fertiliser players produce 550,000 tons urea per month including 70,000 tons with LNG. Pakistan has a demand of 5.8 million tons per year or 483,000 tons per month.
The government started the subsidy in April this year. After that, it has been nine months and with the time the sector has piled up around one million ton inventory, said the analyst. "We fear that they will have to sale urea on discounted price," said Hussain.
This is the time when Rabi season is coming to an end while Kharif season will start in April, presumably a gap of three months before the farmer will be needing urea.
"In this time, production houses will keep producing urea and that will build more stock and subsequently more pressure on the companies and they will lose their pricing power," said Hussain.
Although in December the companies have already stopped producing urea with LNG, still the inventory will continue to pile up in the next three months.
Imran's govt mulls paying urea subsidy directly to farmers
Now, the sector is left with two options, either the government let it export, which can bring $250 million foreign exchange for the country or the sector will have to sell on a discounted rate and bear the loss.
In May 2017, Pakistan had built up an inventory of 1.7 million, said the analyst. At that time, the government allowed the sector to export 300,000 tons and again after three months, the sector exported another 300,000 tons to normalise the surplus inventor.
Published in The Express Tribune, December 28th, 2019.
Pakistan's fertiliser sector has built up urea inventory of one million tons, which is going to weaken the pricing power of the companies if the government does not allow them to export.
As per the latest data released by the National Fertiliser Development Corporation (NFDC), the sale of urea surged 2.2 times to 381,000 tons in November as compared to 119,000 tons in the previous month. On the other hand, DAP offtake showed comparatively muted growth of 49% on a month-on-month basis in the period under review.
"Overall nutrient offtake showed an upward growth of 80% month-on-month as better rains and availability of water support higher demand of nutrients in Rabi sowing season," stated a report by Aba Ali Habib Securities.
Despite this improvement, the sector has piled up a huge stock, which will force it on the back foot and push down prices as the demand inside the country does not match the extensively high production.
Agricultural breakthrough: New organic fertiliser promises wonders
This year the sector has accumulated one million tons of urea. In November 2018, the inventory was only 150,000 tons, which means an increase of almost seven times, said Sherman Securities analyst Saqib Hussain.
At the beginning of 2019, the country faced a shortfall of urea due to the low availability of natural gas.
In a bid to facilitate the fertiliser sector, the government allowed producing urea with LNG, which comparatively costs higher than natural gas available in Pakistan, according to the analyst. The LNG price is attached to the dollar price which is why the government had to give subsidy, he added.
The government gave a subsidy of Rs650 to Rs700 per mmbtu, which translated into Rs800 per urea bag of 50kg.
Cumulatively, the fertiliser players produce 550,000 tons urea per month including 70,000 tons with LNG. Pakistan has a demand of 5.8 million tons per year or 483,000 tons per month.
The government started the subsidy in April this year. After that, it has been nine months and with the time the sector has piled up around one million ton inventory, said the analyst. "We fear that they will have to sale urea on discounted price," said Hussain.
This is the time when Rabi season is coming to an end while Kharif season will start in April, presumably a gap of three months before the farmer will be needing urea.
"In this time, production houses will keep producing urea and that will build more stock and subsequently more pressure on the companies and they will lose their pricing power," said Hussain.
Although in December the companies have already stopped producing urea with LNG, still the inventory will continue to pile up in the next three months.
Imran's govt mulls paying urea subsidy directly to farmers
Now, the sector is left with two options, either the government let it export, which can bring $250 million foreign exchange for the country or the sector will have to sell on a discounted rate and bear the loss.
In May 2017, Pakistan had built up an inventory of 1.7 million, said the analyst. At that time, the government allowed the sector to export 300,000 tons and again after three months, the sector exported another 300,000 tons to normalise the surplus inventor.
Published in The Express Tribune, December 28th, 2019.