Pakistan Fertilizer: Supply surplus poses risk to pricing power,(AKD Daily, Nov 27,2019)
- As per data released by NFDC, Urea offtake declined 71/74% YoY/MoM to 119K tons in Oct’19. This takes 10MCY19 urea offtake to 4.49mn tons, down 2% YoY. The ending inventory stands at 886K tons in Oct’19 vs. 212K tons in Oct’18/peak of 1.7mn tons in May’17.
- Subsidized LNG supply to non-operational fertilizer plants since Oct’18 and 100K tons of urea import remained the main culprits for the inventory build-up. If LNG plants remain operational for even 1HCY20, further build-up in urea inventory levels from this point could result in discounts from the fertilizer players.
- On the other hand, directing the potential subsidy towards small farmers (owning 50% of farmland) could reduce urea price by PkR860/bag. This would improve farmers’ economy, without creating excess urea supply situation in the Fertilizer sector.
- While profitability is expected to improve sequentially due to pass on of cost inflation, we believe sector price performance will remain a function of (i) demand supply situation and (ii) Supreme Court’s ruling on the GIDC scenario. We thus advise investors to maintain cautious stance in the sector.
AKD Research
Fauji Fertilizer is engaged in the manufacturing, purchasing and marketing of fertilizers including the investment in other fertilizer manufacturing operations. As of Dec 31 2004, Co. had a design capacity of 2,455,000 tonnes for urea production and 445,000 tonnes for DAP production.
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