KARACHI: A major reduction in feedstock gas tariffs for fertiliser manufacturers is to improve their earnings and encourage them to bring down the prices of the key agriculture input, analysts said on Friday.
The government cut the feedstock gas prices for fertiliser manufacturers by Rs77/million British thermal unit (MMBtu) to Rs123/MMBtu from April 1. It raised the gas tariffs for fertiliser companies to Rs200/MMBtu in September last.
The notification issued by the Oil and Gas Regulatory Authority said the reversal in prices will be implemented for fertiliser plants being run on gas from by the Sui Northern Gas Pipelines Limited, Sui Southern Gas Company Limited and Mari Petroleum Company Limited.
Analysts foresee a reduction in the prices of urea bag following the lowering of gas tariffs.
“As per different news and channel checks, fertiliser manufacturers will reduce their prices by Rs60-70/bag in lieu of reduction in feed gas prices,” said Tahir Saeed at Topline Securities.
Fahad Rauf at Taurus Securities Limited, however, said the quantum of urea price reduction is not confirmed yet.
Urea prices have been hovering around Rs1,800/bag since the beginning of the first quarter of 2016. In March, total fertiliser off-take fell 49 percent year-on-year to 279,000 tons.
Saeed said the gas tariff reduction will have positive annualised earnings per share impact of Rs2.2, Re0.6, Re0.6 and Re1.2 on Fauji Fertilizers, Fauji Fertilizers Bin Qasim, Engro Fertilizer and Engro Corporation.
“Fatima Fertiliser will remain unaffected since FATIMA is getting concessionary feed gas. EFERT new plant is also getting concessionary gas so it will be partially affected due change in feed gas price,” he added.
Industry officials said the rising fertilser production on ample gas supplies is likely to push manufactures to seek government’s permission for the export.
In the beginning of this year, fertilizer inventory stood at around 550,000 tons. Industry’s production stands at 5.5 million tons and demand is hovering between 5.1 to 5.4 million tons.
An analyst said there is high likelihood that the urea market will be more than adequately supplied throughout 2016.