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Pakistan Fertilizer: Oct 2018 Urea sales +24% YoY

• Urea sales continued to maintain its momentum during Oct 2018 with volumes to settle at around 464k tons, +24% YoY. Higher urea sales is attributed  to uptick amidst seasonal Rabi crop. Similarly, for 10M2018, urea sales grew at meagre +1% YoY due to increase in farmers economics on back of better rice/cotton crop prices.
• Closed urea plants of FatimaFert and Agritech resumed operations during the month after their negotiation with Govt. on blended RLNG/natural gas ratio. Helped by both plants, urea production for Oct 2018 is likely to reach around 540k tons vs. average of 445k tons in 9M2018.
• Closing inventory of urea during Oct 2018 is likely to clock in around 200k tons. To note, 50k tons imported urea will also reach Pakistan in mid-Nov 2018.
• Among companies, Engro Fertilizer (EFERT) is likely to see growth rate of 12% YoY during Oct 2018, taking its 10M2018 sales to 1.64mn tons, up 15% YoY. On the other hand, Fauji Fertilizer (FFC) is expected to record 203k tons sales, where its 10M2018 sales will cross 2mn tons, up 12% YoY.
• Outlook: We maintain our market weight stance on fertilizer sector as Govt. is more focused on improving farmers economics by reducing their cost of input (which is inline with their manifesto). This could potentially put pressure on margins while offtake is expected to remain healthy.
• Key Risks: Key risks to fertilizer industry, 1) decline in international urea prices, 2) slower than expected urea sales, 3) poor crop season, 4) sharp hike in domestic gas price and 5) rupee devaluation.