Urea sales likely to rise 56% quarter-on-quarter

Though many sectors of the economy are registering negative growth, the fertiliser industry has recorded improvement in its sales.

In the second quarter of 2020, the fertiliser sector depicted a mixed trend where urea sales may have increased by 5% compared to the same period of last year to 1.6 million tons.

However, DAP sales was likely to have declined by 27% in the quarter against the corresponding period of last year, said Sunny Kumar, an analyst at Topline Securities.

Meanwhile, urea sales may have jumped around 56% in the second quarter compared to the preceding quarter and DAP sales were likely to have increased by 58% quarter-on-quarter. In first quarter of 2020, dealers and farmers had held back their purchases on anticipation of a decline in fertiliser prices.

Farmers expected the government to announce subsidy on fertiliser in the budget for FY21. Although the government did not grant any subsidy, the clarity on that front led to higher sales as demand was accumulating.

“In comparison with other sectors like cement, steel, etc, the fertiliser sector has remained stable during the Covid-19 crisis,” remarked Tahir Abbas, Head of Research at Arif Habib Limited.

In June 2020, urea offtake rose a whopping 76% to 1.2 million tons. The increase in sales could be attributed to the recent decline in prices.

In Q2FY20, average urea prices declined by 10%, or Rs1,657 on every bag, compared to the same period of preceding year as all companies passed on the benefit of elimination of gas infrastructure development cess (GIDC), added Kumar.

DAP prices also fell by 5% year-on-year and 3% quarter-on-quarter to Rs3,393 per bag.

Besides the accumulation of fertiliser demand due to expected subsidy announcement, May and June were the months that had a seasonal impact also, he commented.

“Later, demand for fertiliser slowed down as farmers were done with buying for the Kharif sowing season,” Kumar said, adding, “next seasonal impact will be witnessed in November and December as at the end of the year Rabi season starts in Pakistan and farmers start buying fertiliser again.”

“During this coronavirus crisis, the government has taken good care of the fertiliser supply chain as it is part of the food chain and food security has been the prime target of the government,” said Abbas.

“Food is a major component of inflation. Increase in food prices leads to a rise in inflation, which is already soaring in Pakistan. Therefore, the government has to take care of the segment more than other sectors and that is a good decision.”