Double trouble for fertilizer sector in 2012

Faizan Saleem

New 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.

The troubles of the fertilizer sector of Pakistan are already swelling 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 also aggravating the gloomy situation presently.

The local urea prices have crossed the mark of Rs 1,580 per bag, hence there would be a little room for the local manufacturers to raise the urea prices in near future particularly in the backdrop of falling international prices, predicts the research note of AKD securities.

However, after the implementation of proposed gas surcharges in the form of GIDS, the manufacturers could pass on the cost burden to the local farmers but it would not supplement the earnings of the fertile manufacturers.

According to the note, the increase of Rs 197/mmbtu in feed stock coupled with 14 percent increase in fuel stock prices could bring another round of price hike as manufacturers would pass on the cost impact to the consumers.

However, the earnings of the fertilizer manufacturers are unlikely to take the positive impact as this will take local urea prices at par with the international urea prices limiting manufacturer’s ability to further increase the prices irrespective of the gas supply situation.

During the month of November, the fertilizer offtake remained daunting as both urea and DAP sales plunged by 12 percent and 22 percent respectively. The higher fertilizer prices along with weak farmers income has drag down the demand of fertilizer.

The future of the fertilizer seems in line with the supply of gas flow to the manufacturers. The urea production is expected to remain hampered till January as the gas crisis is taking its toll amid winter season. Hence, the government would more rely on imported urea which would exert further pressure on the soaring import bill of the country.

http://www.halaltamweel.com/2011/12/30/News/Double-trouble-for-fertilizer-sector-in-2012/2963/Story.aspx