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
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