Karachi: Subsidized imported urea hurting local producers

According to Arif Habib Limited,

The National Fertilizer Development Corporation (NFDC) has released fertilizer production and off take figures for the month of February 2012.

Urea sales suffer 61% YoY decline

Urea off take during the month suffered a contraction of 61% YoY and 160 k tons were sold. Feb-12 sales were lower by 74% on a MoM basis. During 2MCY12, urea sales declined by 5% YoY to 770 k tons. This lower off take can be attributed to the market prices of some major crops which failed to keep pace with the soaring fertilizer prices, leading to a reduction in farmers’ purchasing power. Meanwhile, average urea retail price declined by 1% MoM to PKR 1,799/bag.

DAP sales plunge by 83% YoY

DAP sales inFeb-12 contracted by a massive 83% YoY to 12 k tons. This is the lowest off take figure for the month of February since 1997. A 31% YoY increase in DAP prices and zero production of DAP during the month were the major reasons for this dismal performance. MoM sales contraction was registered at 59% during the period under review. DAP prices during Feb-12 were recorded at PKR 4,132/bag.

Fertilizer off take (Ktons) Feb-12 Feb-11 YoY Jan-12 MoM 2MCY12 2MCY11 YoY

Urea                         160    413 -61%   610 -74%   770    807 -5%

DAP 12 69 -83% 29 -59% 41 128 -68%

High fertilizer prices hurting sales

As of Feb-12, the considerably lower price of imported urea (set at PKR 1300/bag by the government) has resulted in higher margins for dealers selling the imported variety. Dealers have consequently preferred selling imported urea over the locally manufactured one. We believe that the recent price hike of PKR 300/bag on imported urea in Mar-12 will help reversing this negative trend for local producers. As of Feb-12, the National Fertilizer Marketing Limited’s (NFML) Feb-12 closing inventory of urea stands at 278k tons. We are of the view that local manufacturers’ sales will be compensated in 2HCY12.

Dismal performance leads us to revise our quarterly estimates

Fauji Fertilizer Company (FFC), Engro Fertilizer and Fauji Fertilizer Bin Qasim (FFBL) witnessed 2MCY12 YoY urea sales contraction of 35%, 57% and 100% respectively. Based on these numbers, our tentative EPS forecasts for FFC, FFBL and Engro Fertilizer stand at PKR 3.30, PKR (0.05) and PKR (1.25) respectively. Actual Mar-12 fertilizer off take and production numbers is still awaited.