Pakistan Fertilizers: Gas tariff hike likely to be a mixed event for the sector
- Newsflow on impending gas tariff hike has picked up recently. We highlight that expected tariff hike might prove to be a mixed event for the fertilizer sector, where companies with access to concessionary gas such as EFERT and FFC may end up benefitting from tariff hike.
- Furthermore, int’l prices also remain supportive of domestic urea prices where discount of domestic urea prices to int’l prices currently stands at 27%.
- Moreover, the latest numbers reported by NFDC also paint a favorable picture on pricing front as closing inventory of urea stood at 86k tons (3yr low) during the month of Jul’18. However, we highlight that govt.’s policy on limiting agri input price inflation would likely have significant bearing on industry pricing power going forward.
- As per the latest data of NFDC, urea offtake for the month of Jul’18 stood at 497k tons, down 18% MoM, mainly due to high base effect. On the other side, DAP offtake picked up to 302k tons, up 59% MoM, likely in anticipation of rising prices taking cue from soaring int’l prices and PKR weakness.
- We continue to maintain our overweight stance on the fertilizer sector and maintain preference for players with access to concessionary gas such as EFERT (PKR91/sh) and FATIMA (PKR37/sh) due to their low cost structure and more efficient plants.
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