Daily Times

KARACHI: Higher prices of urea, which were increased to pass on feed-gas price hike impact, happened to be a non-event for local urea manufacturers as urea sales dropped significantly by 52% in October 2015, National Fertilizer Development Centre (NFDC)’ latest data revealed.

Urea sales in October 2015 clocked in at 197000 tones, depicting a significant decrease of 52% Year on Year (YoY) against 411000 tones recorded in the same period last year. Foundation Securities’ analyst Muhammad Awais Ashraf attributed this decline to higher urea prices, poor performance of cotton and rice, and withheld cash subsidy.

On the other hand, ‘Kisan Package’ fortified DAP (Di-ammonium phosphate)’s sales by 83% in same month. This diverse sales trend of urea and DAP was witnessed mainly on the back of government’s two recent decisions as the government raised feed-gas prices for the fertiliser industry in September, while Prime Minister of Pakistan announced subsidy worth Rs 20 billion for farmers translating in to subsidy of Rs 500 on every bag of urea.

In order to pass on gas price hike impact to consumers, local manufacturers have increased their prices in range of 1-3% from Rs 1,888 in October 2014 to 1,948/bag in October 2015.

‘Local manufacturer’s strategy to pass on impact of gas price hike has faced a serious setback in the backdrop of weak Agronomics. On the other hand, timely disbursement of phosphate subsidy has resulted in significant increase of DAP sales,’ added Ashraf.

Despite drag of sales of previous Rabi season into this calendar year, cumulatively urea sales decreased by 8%YoY during ten months of 2015 to 4.2 million tones against 4.5 million tones recorded last year. Local manufacturer’s sales dropped by 7% YoY as almost all players posted decline in off take. Following the trend, imported urea went down by 13%YoY. Subsequently, urea inventory stands at 8-year high of 1.1 million tones.

On the other hand, timely disbursement of subsidy on phosphate fertilizers inflated

October 2015 DAP sales to 536000 tones, a high of last 8-year, up 83%YoY against 292000 tones recorded last year. On cumulative basis, during 10 months of 2015, DAP off takes grew by 7%YoY to 1.1 million tones mainly driven by a subsidy of Rs 500/bag on DAP allocated in budget in order to meet sowing target of wheat.

‘Despite cash subsidy disbursement of Rs5,000/acre to farmers under 12.5 acres of holding, we foresee fertilizer demand to remain depressed. As we believe agronomics is going to be driven by farmer’s tight cash position given lower yield on cotton, lower prices of rice and delay in sugarcane crushing season,’ said Ashraf.

Habib Metro Financial Services’ analyst Kumail Chevelwalla said with the decrease in DAP prices by Rs 500/bag, DAP off take during the Rabi season is likely to remain elevated expected to be sold in final quarter of 2015. However, the ongoing uncertainty over urea pricing will keep the off take on lower side. The international fertilizer prices are expected to trade at current levels with urea to sell around $260/ton while DAP will hover around $ 440/ton, he added.