Urea price raised ahead of tariff hike

Govt mulls increasing feed gas price for FFC to end pricing anomaly

KARACHI:

Fauji Fertiliser Company (FFC) has increased its urea price by Rs634 to Rs4,286 per 50kg bag, taking rates near levels at which other branded products are being sold in the market ahead of the potential hike in feed gas tariff by the government.

Earlier, it was selling the chemical at Rs3,652/bag compared to prices in the range of Rs4,300-5,500/bag at which other manufacturers and marketers were selling the commodity, Arif Habib Limited (AHL) reported on Tuesday.

FFC had gained a price advantage after the government left its feed gas tariff unchanged at Rs580 per million British thermal units (mmBtu) in February, but raised tariff to Rs1,597/mmBtu for the other manufacturers receiving gas from Sui Southern Gas Company and Sui Northern Gas Pipelines Limited.

Talking to The Express Tribune, AHL Head of Research Tahir Abbas said FFC received gas from the Mari Petroleum network. “Market speculation suggests the government is considering increasing the feed gas price for FFC (to Rs1,597/mmBtu) as well to end the gas pricing anomaly and create a level playing field for all fertiliser manufacturers in the country.”

The increase in the FFC gas price will lead to urea price stability as the disparity caused distortion in the market.

On the other hand, Fauji Fertiliser Bin Qasim Limited (FFBL) revised its urea price down by Rs783 to Rs4,336/bag because it failed to attract fresh buying from farmers at the elevated rate. “FFBL has revised down the price to market levels after its sales fell in the aftermath of a price war,” Abbas said.

Earlier, FFBL and Engro Fertilisers increased urea prices from around Rs2,500/bag following the halt to subsidised gas supply by the government, which raised feed gas price to Rs1,597/mmBtu from Rs580/mmBtu in February.

Engro Fertilisers maintained its price at Rs4,435/bag, the research house reported.

Abbas elaborated that fertiliser manufacturers had adjusted prices to keep their sales robust with fair profit margins ahead of the Kharif crop sowing season. Pakistan produces four major agricultural products in the summer sowing season including cotton, sugarcane, rice and maize.

He, however, believed the price adjustment may remain neutral for farmers, as they were already buying urea at around Rs5,000/bag due to its stockpiling and smuggling to countries along Pakistan’s border compared to the fair market price of Rs2,500/bag.

Smugglers were selling urea in markets abroad at huge profit margins, as the commodity was available at a subsidised price of Rs2,500 in Pakistan.

To end the menace of smuggling and meet a major condition of the International Monetary Fund (IMF), which called for an end to the subsidised gas supply to fertiliser manufacturers, the government has revised gas tariff upwards twice for fertiliser companies since November 2023.

In a positive sign, farmers are believed to have applied the required quantity of urea to their summer crops, instilling hopes of bumper harvests of key commodities.

Topline Research projected the other day that the increase in gas tariff for FFC to match industry levels at Rs1,597/mmBtu from Rs580/mmBtu would enable the government to fetch additional revenue of Rs80-100 billion.

“If the government removes this distortion (gas price disparity) by increasing Mari gas prices, then it will be able to stabilise urea prices for farmers and collect an additional Rs80-100 billion in revenues as well,” it said. “We believe the government should equalise gas rates for the entire industry, otherwise, it will create distortion and go against the IMF’s suggestion of elimination of subsidies.”

In response to the recent gas tariff increase and lifting of imported urea by the government, FFBL raised its urea price to Rs5,489/bag.

According to channel checks, FFC’s urea price stood at Rs3,767/bag while Engro Fertilisers increased price to Rs4,435/bag after the gas tariff hike.

The gas price discrepancy had caused immense instability in the fertiliser market, with excessive profiteering and hoarding by middlemen, pushing urea prices to around Rs5,000/bag for farmers.

The report warned that even if gas rates for Mari-based customers remained unchanged, they were likely to increase urea prices in line with other players.

Published in The Express Tribune, April 10^th, 2024.

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