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Pakistan Fertilizer: Urea sales to surge by 45% YoY in Jul 2018

• Pakistan urea sales during Jul 2018 is likely to increase by 45% YoY due to low base effect last year. To recall, industry witnessed higher offtakes in Jun 2017 (nearly 1mn tons) in anticipation of reduction in cash subsidy. Sales were normalized in subsequent month Jul 2017. Other than this, we believe sales were higher in the outgoing month due to inventory buildup by dealers/farmers in anticipation of rise in urea prices amid its prevailing shortage.
• Urea inventory in July end is estimated to touch nearly 5-year low at 120-130k tons, where last low was seen in Aug-2013 at around 105k tons. Sharp decline in inventory is due to closure of few fertilizer plants amid unavailability of natural gas and their unviability at current LNG prices. 
• Among companies, Engro Fertilizer (EFERT) is expected to post sales growth of 131% YoY to 171k tons. While, Fauji Fertilizer (FFC) and Fauji Fertilizer Bin Qasim (FFBL) sales are likely to grow by 49% YoY and 36% YoY respectively.
• During Jul 2018, DAP sales were likely to close flat at 285k tons, taking 7M2018 offtake to 967k tons, up by 14% YoY. On the other hand, urea sales during 7M2018 is expected to reach 3.2mn tons, up by 6% YoY.
• At present dealer transfer price of urea is around Rs1570-1590 per bag, while recent data released by Pakistan Bureau Of Statistics (PBS) indicates that dealers are selling at average of Rs1660/bag. Higher spread earned by dealers reflects shortage of urea inventory, signaling further increase in official urea prices going forward.