Demand for fertilizers went up 21%YoY in 11MCY13

According to latest data released by NFDC, total fertilizer off take went up by 22% YoY in 11MCY13. During the period, Urea offtake stands at 5.2mn tons compared with 4.2mn tons in 11MCY12, along with whooping jump in DAP offtake (up 37%YoY) to clock in at 1.45mn tons. According to research analyst Rafia Hanif, this volumetric growth is mainly led by significant jump in Engro’s urea sales (up 112% YoY) due to gas availability to both of its plants. While, 33% YoY jump in FFBL’s DAP sales helped industry offtake to grow by 37% YoY in the review period. We expect nutrients offtake to enhance further as DAP demand in Rabi season goes up, while lower prices of DAP (down 2% MoM) is expected to propel demand growth. On the flip side, government is planning to implement gas load management program along with increment in feed gas prices, which will put a downward pressure on producer’s margins. However, the actual increase is yet to be announced by government, we believe, manufacturers are likely to pass on the additional cost to the end user.

Rise in DAP offtake to augment FFBL’s bottomline

FFBL’s DAP offtake observed a jump of 33%YoY to clock in at 709k tons and FFBL being the sole producer of DAP enjoys a significant market share of 49%. Enhanced DAP offtake is led by declining prices and distributors are piling up their inventories given the usual market trend for higher DAP demand in Rabi season. On MoM basis DAP prices have went down by 2% which is in line with declining international prices that now stands at US$350/ton. PhosAcid prices have also declined to US$609/MT but this has not improved DAPs margin as the final price for the product is also witnessing a declining trend.

FFC: Enjoying the major chunk in Urea sales

FFC enjoys a significant share in urea (~42% market share) and has been running its plant at optimum capacity. Gas is being supplied to its plant by Mari, hence, FFC didn’t face gas curtailment. During the 11MCY13, FFC sold 2.2mn tons of urea (up 11% YoY), whilst imported DAP sales plunged by 48%YoY to 28k tons.

ENGRO: Higher gas supply leads to higher production

Engro has been in the limelight during this quarter and has gained investors interest given the fact that it is on the verge of being listed on stock exchange. It is observed that demand for urea have enhanced significantly by 112% on YoY basis and production growth has also gone up by 56% in the review period. This robust increment is supported by temporary gas being allocated to it from Guddu plant. Going ahead, there has been talk about ECC giving approval to supply gas at the concessionary rate of US$0.7/MMBTU signed with SNGPL. If approved, this will enhance Efert’s position and have a positive impact on its margin.

Outlook- Increase in gas prices on the cards Government plans to increase feed gas prices to reach the same level of fuel price which will dampen not only the producers’ margins but economy in general will face their implications. Agricultural output is affected by the supply of nutrients in the form of fertilizer. So, Pakistan being an Agri based nation where agriculture provide raw material to other sectors and has a major share in the nations GDP will be negatively affected.

Source: Alt-Research