M.M Securities Pvt. Ltd.
National Fertilizer Development Center (NFDC) has released fertilizer offtake numbers for the month of July, 2012. According to the report, the total nutrient offtake during July 2012 was about 271 thousand tons compared to 354 thousand tons of July, 2011, showed an decrease of 23.3%. Nitrogen and Phosphate offtake decreased by 22.2% and 25.2% respectively. Further, Potash offtake also decreased by 67.6% YoY basis. During the month, Urea offtake decreased by 19.2% to ~389 thousand tons and DAP offtake also witnessed decrease of 23.1% to ~101 thousand tons on YoY basis. This decrease in Urea offtake was mainly due to reduction in its company price by local fertilizer industry from Rs. 1,790 to 1,650 per 50 kg bag and higher supplies by the GOP i.e. ~105 thousand tons. On the other hand, local production of Urea also declined by 25%, YoY basis as per the NFDC statistics.
Kharif Offtake’ 12– Upward Sticky
Total nutrient offtake during Kharif 2012(April-July) was about 1,291 thousand tons, which witnessed an increase of 5.6 % over same timeframe of Kharif 2011. Out of this, nitrogen was 1,112 thousand tons (7.5 %, increase) , phosphate 174 thousand tons (-2.9 % decrease) and potash about 5.2 thousand tons (-37.9 % decrease). Urea and DAP offtake was 2,104 thousand tons (8.8%, increase over Kharif 2011) and 283 thousand tons (0.3%, decrease over Kharif 2011) respectively.
Fertilizer Production vs. Imports
Production of major fertilizer products during July 2012 was about 399 thousand tons. Total production during the period was ~460 thousand tons and total imports reported at ~114 thousand tons. Urea production was 330 thousand tons contributing ~71.7% to the total production. Other products were; DAP 69 thousand tons, CAN 26 thousand tons, Nitrophos 21 thousand tons, SSP 6 thousand tons and NPK (various grades) was 8 thousand tons. Imported supplies comprised of 31 thousand tons of Urea and 83 thousand tons of DAP respectively.
Urea Production July’12– Gas victim, no remedy yet
Urea production was down by 11% MoM basis and 25% YoY basis. During the month SNGPL network’s plants had the same situation as compared to last month in the gas supply. GOP wasn’t able to fulfill their gas demand yet on continuous basis. Especially to ENGRO (EnVen), DAWH, PAFL and AGL, although this was decided earlier GOP will supply gas to these plants on rotational basis. Further, all these have massive dents in production during the month, FFC and ENGRO were the major participants , reported 56% and 23% YTD production share respectively. Due to uncontrollable power crisis and bad management polices by GOP, Fertilizer sector continuously recorded its protest on this kind of polices and decisions. Now a days, GOP thinking to revert its decision for the gas supply of fertilizer sector to power sector few months back or work out some feasible formula for both sectors.
Urea off take June’12– Players wait for the right time, stock on hold
On YoY basis Urea offtake decreased by ~19% to ~388 thousand tons during July’12. Further, Urea offtake also showed 62% decline, MoM basis. During the month, Urea sales were mainly supported by FFC (42%) and NFML (~30%). Luckily FFC was getting uninterrupted gas supply during the period and captured price war very comfortably. During the month they got volumes as compared to peers because PKR 145/bag cumulative downward price movement was observed in the local market and provided them to take chunk of market share because they had a large number of inventory in their opening inventory account heads at the start of the month. As far as NFML is concern, enjoyed benefit as a sole holder of closing inventory during last month but didn’t get as much volume gains according to the expectations, although, they captured 30% of total offtakes in the local market during the period. However, all remaining players have also shown declining trend like, ENGRO, FFBL and FATIMA. On the other hand DAWH reported little bit improvement in terms of offtake via 0.6% increment. As far as Engro, FFC and FATIMA are concern they hold their inventories and wait for the right time to sold because there is some price manipulation would be expected by GOP because they are importing Urea continuously since last year in huge quantities. Currently, they awarded tender for importing 300,000 tons at the rate of USD 399 / ton. In this scenario, the per bag price of the upcoming imported Urea to the GOP would be PKR ~1995 (CIF) but they are currently selling at PKR 1650 per bag. The cautious stance from the local players witnessed via holding of stock (especially Engro ~109 thousand tons) indicated that may be GOP will reduce the price per bag with the arrival of this current import for upcoming Rabi season because there is some rumor in the market that GOP may enhance its subsidy of Urea up to PKR 200 to 300 per bag. If it will happen, local players try to get volumetric gains in the upcoming months but still this is in IF and But stage. On the other hand all local players offtake reported declining trend with the range of 99% to 70% MoM basis because they are all suffering gas curtailment, unclear load management polices from the government and high prices as compared to imported one during the month.
DAP offtake June’12– Dent via low demand
During July’12 DAP offtake has registered decline of ~23% YoY to ~101 thousand tons as compared to ~131 thousand tons in the same period last year. This declining trend witnessed extraction in DAP demand because farmer was able to swan cotton after some delay due to lack of water availability during the season via weak monsoon season, especially in the Sindh region. Secondly, the increasing price trend internationally also created a impact on demand of DAP locally because local prices also witnessed inclining trend. However, market share of FFBL has reported to 44% only as a sole producer but very low volumes reported, 49thousand tons. Further, ENGRO, FFC and DAWH market share has clocked in at ~21.5%, ~11% and ~8% respectively through imports during the period.
The prices of all fertilizers excluded Urea and DAP decreased in the month of July’12, with in range of 0.1% to 5.3% in the local market as compared with June 2012. The price of Urea remained in the range of PKR 1,710-1,750 per 50 kg bag during July 2012 and the average price of DAP was reported as PKR 3862 per 50 kg bag which increased by 2.5 % and 1.1% over June 2012 respectively. The prices of CAN, SSP (G) and SSP (P) decreased by 0.1%, 1.8% and 2.2%, respectively in July 2012 as compared toJune 2012. On the other hand, NP showed minimal incline of 0.1% as compared to June 2012 price per bag.
Fob bulk Yuzhny-Urea was quoted at USD 360-426/ton. Middle East bagged urea was reported at USD 395-415/ton. On the other hand, DAP-US Gulf prices were in the range of USD 505-517/ton fob and DAP-US in the range of USD 560-585/ton bulk fob in China market.
Fertilizer Closing Inventory Distribution
Total fertilizer closing inventory reported at ~808 thousand tons during July’ 12. Major holdings were reported in account of Urea and DAP, ~79% collectively and 43% and 36% respectively. On the other hand, NP holding clocked in at 9% for the month of July’12. This closing inventory of fertilizer indicated that country hold enough stock for remaining Kharif season.
Outlook & Recommendations
As per future outlook, industry is going to be attractive because of Urea intake. Government of Pakistan may try to reduce the gap between imported and local prices. This step may provide relaxation for the producers and farmers both and will enhance the Urea offtake too. On the other hand, local manufacturers have already responded via cut down in prices of Urea by PKR 145/bag because cheep Urea available in the market. For DAP offtake to improve, the Government of Pakistan may have to consider restoring the subsidy on phosphate fertilizers, which was discontinued by Government of Pakistan two years back. It will also enhance the Urea: DAP application ratio and create substantial pressure on DAP local prices as well. This would be the major cause of DAP offtake trend on inclining node.