The State Bank of Pakistan in its first quarterly report for the fiscal year 2012 has warned the missing growth target due to the number of economic issues currently being faced by the country.
The gloomy forecast in the quarterly report of SBP emphasizes that economy of Pakistan is going through its testing phase as it is not enjoying the favorable economic ambiance.
There are a lot of underlying problems with the Pakistan economy that the government is not paying attention to. The blend of internal and external economic factors are haunting economic managers of the country to pursue the economic achievements of previous fiscal year FY11.
The factors which contributed towards economically successful year of fiscal year FY11 included higher international commodity prices, IMF’s exorbitant program, healthy financial inflows, currency stability and phenomenal growth in exports, but all these blessings happened in previous year seems now a daydream.
The previous fiscal year proved to be a “Year of textile” as the sector achieved new heights of the history by lifting up the overall exports of the country to the highest level. But, the ongoing recessionary scenario in United States & European Union coupled with lower cotton prices has wiped out the hope of Pakistani exporters to repeat the last year sensation once again. The foreign investors are showing resentment due to several internal issues like power crisis, law & order concerns and highest level of corruption.
Moreover, the financial inflows have also dried up relatively amid squeezed relationship with United States and weak economic position of major European countries. The only respite supporting the current account of Pakistan is money sent by expatriate Pakistanis in the form of remittances.
On the other hand, the import bill is bubbling gradually majorly attributed to inflated import bill of oil and now fertilizer. Moreover, the extravagant borrowing of government from banking system has also led to the sluggish growth in private sector due to crowding out effect.
The weak position of Pakistani Rupee due to deteriorating reserves, is also posing a risk to the SBP projected level of inflation and monetary easing. Moreover, the only beneficiary of monetary easing at current stage would be the government as it has borrowed aggressively from the banking system leaving no benefit for the private sector.
The agriculture sector of Pakistan also remained disturbed in last two years due to devastations caused by flood and heavy rainfall. However, it still performed better than expectation but lower food prices and higher local fertilizer prices could perturb the sector going forward.
On the other hand, the industrial sector is going through several challenges arising from energy crises and crowding out. Hence, government might face intricacy to achieve its target growth. In a nutshell, government is likely not to achieve its GDP growth target of 4 percent.
The repayment of $1.2 billion to the IMF is scheduled in first half of 2012 and it is anticipated that foreign reserves would face a major brunt going forward. Moreover, keeping in view the upcoming election, the fiscal deficit is expected to widen as ruling party would try to focus on subsidies to gain the soft image among masses.
Economic managers should take vital steps to come up with further reforms which are dire needs of the country.
http://www.halaltamweel.com/2012/02/02/News/Economic-warnings-need-attention/3640/Story.aspx
Thursday, 2 February 2012
Monday, 23 January 2012
Government borrowing crowding out private sector
The borrowing of government from the State Bank of Pakistan (SBP) and commercial banks is rising significantly to meet its swelling expenses and thus providing less room for the economic managers to ease the monetary stance to provide stimulus to the private sector of the country, which is facing stringent business environment amid several hurdles.
The broad money supply in the country grew by 5.3 percent from the July 2011 to date, where money supply continues to remain tilted towards domestic liquidity.
The previous fiscal year remained sound for the Pakistan economy comparatively as the money supply was in much more control and external account pressure was not as firm as it is currently in an absolute terms.
The major victim of this government’s rising expenditure financing remains the private sector as crowding out effect is resisting them to grow as the financing options are not easily available for them. The commercial banks also prefer to shift their advances to cash strapped government to yield risk free return which is attractive amid high policy rate stance.
Under the present circumstances, the government borrowing now occupies 61 percent of total domestic money supply as borrowing from the SBP lately crossed Rs 189 billion.
The circular debt issue is also getting frightening as the days progress and government’s intension to resolve it by issuing TFC could ruin the private sector further as the country’s budget deficit has risen to 4.5 percent or Rs 932 billion in the first half of the financial year.
Moreover, the persistent depreciation of Pakistan currency, slow exports growth, rising oil prices, weak foreign inflow could further aggravate the liquidity shortages being faced by the government.
Persistent government borrowings will certainly put pressure on interest rates in the long run. Hence, it is imperative that government now should look to improve tax collection and increase tax base to solve budget deficit problem. Persistent borrowing from central bank would fuel inflation and disable the central bank to keep policy rate low for a longer period and this could have negative implications to the already sluggish economy.
http://www.halaltamweel.com/2012/01/23/News/Government-borrowing-crowding-out-private-sector/3449/Story.aspx
The broad money supply in the country grew by 5.3 percent from the July 2011 to date, where money supply continues to remain tilted towards domestic liquidity.
The previous fiscal year remained sound for the Pakistan economy comparatively as the money supply was in much more control and external account pressure was not as firm as it is currently in an absolute terms.
The major victim of this government’s rising expenditure financing remains the private sector as crowding out effect is resisting them to grow as the financing options are not easily available for them. The commercial banks also prefer to shift their advances to cash strapped government to yield risk free return which is attractive amid high policy rate stance.
Under the present circumstances, the government borrowing now occupies 61 percent of total domestic money supply as borrowing from the SBP lately crossed Rs 189 billion.
The circular debt issue is also getting frightening as the days progress and government’s intension to resolve it by issuing TFC could ruin the private sector further as the country’s budget deficit has risen to 4.5 percent or Rs 932 billion in the first half of the financial year.
Moreover, the persistent depreciation of Pakistan currency, slow exports growth, rising oil prices, weak foreign inflow could further aggravate the liquidity shortages being faced by the government.
Persistent government borrowings will certainly put pressure on interest rates in the long run. Hence, it is imperative that government now should look to improve tax collection and increase tax base to solve budget deficit problem. Persistent borrowing from central bank would fuel inflation and disable the central bank to keep policy rate low for a longer period and this could have negative implications to the already sluggish economy.
http://www.halaltamweel.com/2012/01/23/News/Government-borrowing-crowding-out-private-sector/3449/Story.aspx
Monday, 16 January 2012
External Account: Challenging period to come ahead
Faizan Saleem
The first half of the financial year closed with a lot of economic apprehension as the major macroeconomic indicators have performed below the par as compared to the previous year.
The external account, which performed exceptionally well in the previous fiscal year, remained week at the end of first six months (Jul-Dec) and it is expected that external account would face more challenges in the later half of the financial year due to rising oil consumption and fading foreign reserves.
The Pakistan currency remained under severe pressure during 1HFY12 and depreciated by 5 percent against the US dollar owing to higher import payments and halt in financial inflow to the country.
On the other hand, the net foreign reserves held by the State Bank of Pakistan (SBP) also dwindled by 13 percent since Jun 2011, registering a slippage of $2 billion. Thus, the current account once again landed into normal deficit trajectory after witnessing positive numbers in the previous fiscal year.
The Pakistan economy should show gratitude to the overseas Pakistanis who have resisted the external account to turn into an aggravated situation by sending record remittances. Remittances went up by 19.5 percent during first half of financial year with Dec-11 figures higher by 26 percent YoY and 17 percent MoM.
The weak global economic outlook has blown hard the exports of the country which performed exceptionally well amid higher global commodity prices during the previous year. On top of that, the import bill is ballooning continuously, highly dominated by hefty oil import bill amid rising gas crisis prevailing in the country.
The next six months could be very crucial for the external account of the country. Any rising tension between the Iran and United States could bring volatility in the prices of oil. Although repayment of IMF loan starting this year is already a known factor, hence the declining foreign reserves could bring another fall of PKR.
Remittances had been solely keeping the things to balance, but declining foreign investment and rising deficit requires more support from exports and foreign investment. Both will depend on resolution of structural supply side issues, better law and order and favorable investment climate which the ruling government is not able to provide at the moment.
http://www.halaltamweel.com/2012/01/16/News/External-Account--Challenging-period-to-come-ahead/3297/Story.aspx
The first half of the financial year closed with a lot of economic apprehension as the major macroeconomic indicators have performed below the par as compared to the previous year.
The external account, which performed exceptionally well in the previous fiscal year, remained week at the end of first six months (Jul-Dec) and it is expected that external account would face more challenges in the later half of the financial year due to rising oil consumption and fading foreign reserves.
The Pakistan currency remained under severe pressure during 1HFY12 and depreciated by 5 percent against the US dollar owing to higher import payments and halt in financial inflow to the country.
On the other hand, the net foreign reserves held by the State Bank of Pakistan (SBP) also dwindled by 13 percent since Jun 2011, registering a slippage of $2 billion. Thus, the current account once again landed into normal deficit trajectory after witnessing positive numbers in the previous fiscal year.
The Pakistan economy should show gratitude to the overseas Pakistanis who have resisted the external account to turn into an aggravated situation by sending record remittances. Remittances went up by 19.5 percent during first half of financial year with Dec-11 figures higher by 26 percent YoY and 17 percent MoM.
The weak global economic outlook has blown hard the exports of the country which performed exceptionally well amid higher global commodity prices during the previous year. On top of that, the import bill is ballooning continuously, highly dominated by hefty oil import bill amid rising gas crisis prevailing in the country.
The next six months could be very crucial for the external account of the country. Any rising tension between the Iran and United States could bring volatility in the prices of oil. Although repayment of IMF loan starting this year is already a known factor, hence the declining foreign reserves could bring another fall of PKR.
Remittances had been solely keeping the things to balance, but declining foreign investment and rising deficit requires more support from exports and foreign investment. Both will depend on resolution of structural supply side issues, better law and order and favorable investment climate which the ruling government is not able to provide at the moment.
http://www.halaltamweel.com/2012/01/16/News/External-Account--Challenging-period-to-come-ahead/3297/Story.aspx
Thursday, 5 January 2012
Euro-II standard: Suzuki Alto to be discontinued
The Pak Suzuki Motor Company (PSMC) has announced to discontinue its 1000cc Alto model due to implementation of Euro-II compliant emission standards from July 2012.
As major automobile companies of the Pakistan are adopting this standard, the Pak Suzuki has also decided to follow the trend.
Earlier, Indus Motor Company Limited (INDU) also announced to suspend the production of Daihatsu Coure due to the same reason. Interestingly, the Pak Suzuki has decided only to discontinue the Alto production, although the Euro-II is supposed to apply on all the variants.
Although applicable on all vehicles assembled locally, PSMC has announced that it only plans to stop production of Alto while its other non-Euro-II compliant models (Mehran, Bolan and Ravi) will be upgraded to meet the new regulatory specifications.
The only reason behind Alto discontinuation is that three of PSMC’s models (Mehran, Bolan and Ravi), together comprising more than 60 percent of total units sold in CY10, use variants of the same engine thus making it economically feasible to import an upgraded version of the engine used in these models as compared to investing in one which makes up 15 percent of total sales volume, said by the Umar Hafiz-analyst at Arif Habib Limited.
He further stated that Mehran model would witness an increased demand owing to this termination of Alto production as it is the most economical vehicle of the company. The Cultus comes after the Alto in terms of pricing as it is priced at Rs 957,500, which is around 25 percent higher than price of Alto.
Moreover, the prevailing CNG shortages and halt of production of CNG variants models has also started a new challenge in the automobile sector. Hence, it is expected that sales of small cars like Mehran would get some pace as its fuel and maintenance cost is relatively cheaper.
With stagnant economy, declining purchasing power and increase in all fuel costs, the sector will face challenges.
Despite the relaxation in policy rate, the consumer financing has not picked up as this largely depends on improvement in employment statistics which then depend on healthy economic growth which is not in the near sight at the moment.
http://halaltamweel.com/2012/01/05/News/Euro-II-standard--Suzuki-Alto-to-be-discontinued/3079/Story.aspx
As major automobile companies of the Pakistan are adopting this standard, the Pak Suzuki has also decided to follow the trend.
Earlier, Indus Motor Company Limited (INDU) also announced to suspend the production of Daihatsu Coure due to the same reason. Interestingly, the Pak Suzuki has decided only to discontinue the Alto production, although the Euro-II is supposed to apply on all the variants.
Although applicable on all vehicles assembled locally, PSMC has announced that it only plans to stop production of Alto while its other non-Euro-II compliant models (Mehran, Bolan and Ravi) will be upgraded to meet the new regulatory specifications.
The only reason behind Alto discontinuation is that three of PSMC’s models (Mehran, Bolan and Ravi), together comprising more than 60 percent of total units sold in CY10, use variants of the same engine thus making it economically feasible to import an upgraded version of the engine used in these models as compared to investing in one which makes up 15 percent of total sales volume, said by the Umar Hafiz-analyst at Arif Habib Limited.
He further stated that Mehran model would witness an increased demand owing to this termination of Alto production as it is the most economical vehicle of the company. The Cultus comes after the Alto in terms of pricing as it is priced at Rs 957,500, which is around 25 percent higher than price of Alto.
Moreover, the prevailing CNG shortages and halt of production of CNG variants models has also started a new challenge in the automobile sector. Hence, it is expected that sales of small cars like Mehran would get some pace as its fuel and maintenance cost is relatively cheaper.
With stagnant economy, declining purchasing power and increase in all fuel costs, the sector will face challenges.
Despite the relaxation in policy rate, the consumer financing has not picked up as this largely depends on improvement in employment statistics which then depend on healthy economic growth which is not in the near sight at the moment.
http://halaltamweel.com/2012/01/05/News/Euro-II-standard--Suzuki-Alto-to-be-discontinued/3079/Story.aspx
Attock Petroleum to follow higher dividend trend
Faizan Saleem
The stock of Attock Petroleum Limited (APL) has outperformed the benchmark KSE-100 Index by 20 percent since the start of new fiscal year FY12 and appreciated by 11.3 percent attributed to strong volumetric growth and attractive dividend payout of Rs 41.5 per share for the previous fiscal year FY11.
APL has a history of announcing interim dividend along with its half yearly results. Hence, there is a possibility of a ‘dividend rally’ in January 2012 as the company is expected to pay an interim cash dividend of Rs 12-14 per share, according to the research note of Arif Habib Limited.
APL disbursed a healthy cash dividend of Rs 41.5 per share during the FY11 despite higher working capital requirement by the company, translating into a payout of massive 67.4 percent payout.
According to the note, the healthy payout trend is expected to continue in FY12 as well, with expected dividend of Rs 45 per share, translating into an attractive dividend yield of 10.9 percent.
Although, the oil segment of the company is going through liquidity constraints owing to circular debt issue, but APL has managed its receivables quite smartly. The company has also remained successful in expanding its market share through aggressive market penetration strategy in the retail fuel segment and opened 35 new stations per year on average since FY08.
Hence, the market share of the company in Motor Gasoline (MS) and High Speed Diesel (HSD) has improved to 7.2 percent and 11.1 percent respectively during the first five months of the current fiscal year (5MFY12). The company also attained strong volumetric growth of 41.2 percent and 7.2 percent in MS and HSD during FY11 and the momentum is expected to continue in the current year as well.
The major companies listed on KSE are about to announce their half yearly financial results during the month of January and February. It is expected that buyers’ interest would accelerate in selective scrips during the month of January to capitalize on the expected dividend yield.
http://www.halaltamweel.com/2012/01/04/News/Attock-Petroleum-to-follow-higher-dividend-trend/3054/Story.aspx
The stock of Attock Petroleum Limited (APL) has outperformed the benchmark KSE-100 Index by 20 percent since the start of new fiscal year FY12 and appreciated by 11.3 percent attributed to strong volumetric growth and attractive dividend payout of Rs 41.5 per share for the previous fiscal year FY11.
APL has a history of announcing interim dividend along with its half yearly results. Hence, there is a possibility of a ‘dividend rally’ in January 2012 as the company is expected to pay an interim cash dividend of Rs 12-14 per share, according to the research note of Arif Habib Limited.
APL disbursed a healthy cash dividend of Rs 41.5 per share during the FY11 despite higher working capital requirement by the company, translating into a payout of massive 67.4 percent payout.
According to the note, the healthy payout trend is expected to continue in FY12 as well, with expected dividend of Rs 45 per share, translating into an attractive dividend yield of 10.9 percent.
Although, the oil segment of the company is going through liquidity constraints owing to circular debt issue, but APL has managed its receivables quite smartly. The company has also remained successful in expanding its market share through aggressive market penetration strategy in the retail fuel segment and opened 35 new stations per year on average since FY08.
Hence, the market share of the company in Motor Gasoline (MS) and High Speed Diesel (HSD) has improved to 7.2 percent and 11.1 percent respectively during the first five months of the current fiscal year (5MFY12). The company also attained strong volumetric growth of 41.2 percent and 7.2 percent in MS and HSD during FY11 and the momentum is expected to continue in the current year as well.
The major companies listed on KSE are about to announce their half yearly financial results during the month of January and February. It is expected that buyers’ interest would accelerate in selective scrips during the month of January to capitalize on the expected dividend yield.
http://www.halaltamweel.com/2012/01/04/News/Attock-Petroleum-to-follow-higher-dividend-trend/3054/Story.aspx
Wednesday, 4 January 2012
CNG dilemma: Masses to migrate back to petrol
Faizan Saleem
The CNG sector of Pakistan has remained under severe pressure during the last six months due to massive gas shortages in the country.
If the situation gets worse and gas crisis continues in the future as predicted it would definitely beneficial for oil marketing companies (OMC) as it would take the demand of the petroleum products to the new heights.Pakistan’s CNG sector currently consumes 275mmcft gas on daily basis, which is equivalent to 5,837 tons of Motor Spirit (MS).
Every 10 percent substitution of gas with Motor Spirit (MS) and High Speed Diesel (HSD) is likely to increase demand of both petroleum products by 600 tons on daily basis, which translates into 2.4 percent increase in demand for MS and HSD combined, read the BMA research note.
According to the note, the domestic transport sector consumes around 7.7 percent of natural gas produced in Pakistan while CNG consumption has grown at a massive pace.
Regular outages and continuous loadshedding of CNG stations It is expected that personal cars could shift to the consumption of petrol keeping in view the increased CNG and petrol price parity.
Moreover, running vehicle on CNG also reduces the life of the vehicle, and the power generated by the vehicle’s engine. The long queues at CNG stations due to gas load shedding would also encourage consumers to increase their reliance on MS and High Speed Diesel (HSD).
However, the commercial transport would be reluctant to use MS and HSD as it would lift up their cost of transportation. Nevertheless, the decision would certainly bring new fresh wave in the volumetric growth of the oil marketing companies and higher oil consumption in the country on the back of rising gas crisis in the country. Earlier, government has decided to raise gas prices ranging from consumers to industrial users including the CNG industry of the Pakistan.
The move had seen a massive response by All Pakistan CNG Association (APCNGA) which announced to go on indefinite strike against proposed increase of Rs13 per kg in CNG prices and ban on filling of public transport vehicles.
However, the two-day negotiations between government and the joint delegation of transporters and the CNG stations agreed on Tuesday to end the strike.
The joint delegation of All Pakistan CNG Association and the transporters had presented three demands to the petroleum ministry reduction in the newly-introduced Gas Infrastructure Development Cess; the end of the ban on public transport vehicles using CNG; and a slight reduction in the loadshedding schedule of CNG stations.
Since the country has a history of being negligent on finding alternate energy sources, the consumers will have lack of choice amid this current crisis. In the short run, they will not be able to modify their consumption pattern and with government not able to provide subsidies, they will face pressure on their purchasing power. Hike will also bode negatively for the auto sector in particular.
http://www.halaltamweel.com/2012/01/04/News/CNG-dilemma--Masses-to-migrate-back-to-petrol-/3046/Story.aspx
The CNG sector of Pakistan has remained under severe pressure during the last six months due to massive gas shortages in the country.
If the situation gets worse and gas crisis continues in the future as predicted it would definitely beneficial for oil marketing companies (OMC) as it would take the demand of the petroleum products to the new heights.Pakistan’s CNG sector currently consumes 275mmcft gas on daily basis, which is equivalent to 5,837 tons of Motor Spirit (MS).
Every 10 percent substitution of gas with Motor Spirit (MS) and High Speed Diesel (HSD) is likely to increase demand of both petroleum products by 600 tons on daily basis, which translates into 2.4 percent increase in demand for MS and HSD combined, read the BMA research note.
According to the note, the domestic transport sector consumes around 7.7 percent of natural gas produced in Pakistan while CNG consumption has grown at a massive pace.
Regular outages and continuous loadshedding of CNG stations It is expected that personal cars could shift to the consumption of petrol keeping in view the increased CNG and petrol price parity.
Moreover, running vehicle on CNG also reduces the life of the vehicle, and the power generated by the vehicle’s engine. The long queues at CNG stations due to gas load shedding would also encourage consumers to increase their reliance on MS and High Speed Diesel (HSD).
However, the commercial transport would be reluctant to use MS and HSD as it would lift up their cost of transportation. Nevertheless, the decision would certainly bring new fresh wave in the volumetric growth of the oil marketing companies and higher oil consumption in the country on the back of rising gas crisis in the country. Earlier, government has decided to raise gas prices ranging from consumers to industrial users including the CNG industry of the Pakistan.
The move had seen a massive response by All Pakistan CNG Association (APCNGA) which announced to go on indefinite strike against proposed increase of Rs13 per kg in CNG prices and ban on filling of public transport vehicles.
However, the two-day negotiations between government and the joint delegation of transporters and the CNG stations agreed on Tuesday to end the strike.
The joint delegation of All Pakistan CNG Association and the transporters had presented three demands to the petroleum ministry reduction in the newly-introduced Gas Infrastructure Development Cess; the end of the ban on public transport vehicles using CNG; and a slight reduction in the loadshedding schedule of CNG stations.
Since the country has a history of being negligent on finding alternate energy sources, the consumers will have lack of choice amid this current crisis. In the short run, they will not be able to modify their consumption pattern and with government not able to provide subsidies, they will face pressure on their purchasing power. Hike will also bode negatively for the auto sector in particular.
http://www.halaltamweel.com/2012/01/04/News/CNG-dilemma--Masses-to-migrate-back-to-petrol-/3046/Story.aspx
Monday, 2 January 2012
Fertilizer sector to increase Urea prices
The gas prices for the fertilizer sector of Pakistan has now swelled to Rs 313/mmbtu, a massive increase of 207 percent. The new gas prices would be implemented from the first official day of the New Year (today), according to the notification issued by Oil & Gas Regulatory Authority (OGRA) over the weekend.
Farid Aliani, research analyst at BMA Capital Management Limited, expects that fertilizer sector could announce yet another urea price hike in the vicinity of Rs 250-Rs 350 per bag during this week.
According to the notification, the sector would face a major price hike of Rs 197/mmbtu cess on feedstock gas for old fertilizer units and increase in gas tariff by Rs 14/mmbtu. This brutal decision would take the total cost of feedstock gas for old fertilizer plants to Rs 313/mmbtu.
He writes in his research note, new fertilizer plants including Engro’s EnVen 1.3 and Fatima Fertilizer (FATIMA) would face a nominal hike of 1.81 percent to Rs 61/mmbtu in feedstock gas tariff. Engro Fertilizer would face Rs 320/bag cost impact on old plant, and Rs 17/bag on the new plant whereas cost of Fatima Fertilizer will remain almost unaffected with only Rs 17/bag cost increase.
However, the Fauji Fertilizer (FFC) would face a major brunt of Rs 303/bag of urea cost impact. Thus, the year 2012 is going to be the hard-hitting for the fertilizer manufacturers owing to imposition of Gas Infrastructure Development Surcharge (GIDS), persistent gas shortages, increasing sector regulation and declining spread between local and international fertilizer prices.
According to the note, the fertilizer manufacturers are going to face more challenging year than the one gone by amid severe gas crisis. International urea prices are also headed sharply south, with Yuzhny current month trading at $375/ton, down 13 percent from November end. This implies gradual erosion of pricing power, which the producers have so far relied on to mitigate losses from gas supply issues.
The troubles of the fertilizer sector of Pakistan are rising day by day amid decline in urea demand and continuation of gas curtailment. Moreover, the massive improvement in the global fertilizer’s production and weak commodity prices are also aggravating the gloomy situation presently. Nominal increase in support price of staple crops has also not been able to lift demand.
http://www.halaltamweel.com/2012/01/02/News/Fertilizer-sector-to-increase-Urea-prices-says-analyst/2998/Story.aspx
Farid Aliani, research analyst at BMA Capital Management Limited, expects that fertilizer sector could announce yet another urea price hike in the vicinity of Rs 250-Rs 350 per bag during this week.
According to the notification, the sector would face a major price hike of Rs 197/mmbtu cess on feedstock gas for old fertilizer units and increase in gas tariff by Rs 14/mmbtu. This brutal decision would take the total cost of feedstock gas for old fertilizer plants to Rs 313/mmbtu.
He writes in his research note, new fertilizer plants including Engro’s EnVen 1.3 and Fatima Fertilizer (FATIMA) would face a nominal hike of 1.81 percent to Rs 61/mmbtu in feedstock gas tariff. Engro Fertilizer would face Rs 320/bag cost impact on old plant, and Rs 17/bag on the new plant whereas cost of Fatima Fertilizer will remain almost unaffected with only Rs 17/bag cost increase.
However, the Fauji Fertilizer (FFC) would face a major brunt of Rs 303/bag of urea cost impact. Thus, the year 2012 is going to be the hard-hitting for the fertilizer manufacturers owing to imposition of Gas Infrastructure Development Surcharge (GIDS), persistent gas shortages, increasing sector regulation and declining spread between local and international fertilizer prices.
According to the note, the fertilizer manufacturers are going to face more challenging year than the one gone by amid severe gas crisis. International urea prices are also headed sharply south, with Yuzhny current month trading at $375/ton, down 13 percent from November end. This implies gradual erosion of pricing power, which the producers have so far relied on to mitigate losses from gas supply issues.
The troubles of the fertilizer sector of Pakistan are rising day by day amid decline in urea demand and continuation of gas curtailment. Moreover, the massive improvement in the global fertilizer’s production and weak commodity prices are also aggravating the gloomy situation presently. Nominal increase in support price of staple crops has also not been able to lift demand.
http://www.halaltamweel.com/2012/01/02/News/Fertilizer-sector-to-increase-Urea-prices-says-analyst/2998/Story.aspx
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