KARACHI: Fertiliser manufacturers, piled into unsold stocks, urged the government to immediately allow exports to clear their surplus as the industry feared a pricing war that would further squeeze its profit.
“If there is a further delay in exports they (fertiliser manufacturers) might enter into a price war,” said Zawwar Taufiq, sector analyst at brokerage Topline Securities Ltd.
In September, the government lifted the export ban only from calcium ammonium nitrate – a widely used inorganic fertiliser on the condition that its price would not be increased in the local market.
Fauji Fertilizer has already slashed urea prices by Rs50 to Rs1,310/bag. Engro Fertilizer and Fatima Fertilizer are also offering hefty discounts to balance the inventory level. Currently, Engro is selling urea at Rs1,290/bag and Fatima is selling a bag at Rs1,260 against the price tag of Rs1,300.
“The prices are already under pressure,” said Ruhail Mohammed, chief executive officer at Engro Fertilizers Limited.
“There seems not a much room left for further reduction. Exports’ approval will help reducing the surplus inventory.”
In August, the Economic Coordination Committee (ECC) of the cabinet also approved a reduction in imported urea prices by Rs476/50kg bag to Rs1,310 in order to reduce surplus stocks of imported urea available with the National Fertilizer Marketing Limited, a state-owned procurement agency.
Industry estimates said there will be around 4.3 million tons of fertiliser urea available in the country during the rabi season of 2016-17 against an expected offtake of 3.3 million tons.
The expected surplus urea fertilizer was worked out to be 0.8 million tons up to June 30, 2017, after calculating the increased offtake due to decrease in prices of urea in the country and maintaining a strategic reserve of 0.2 million tons.
Analyst Faizan Ahmed at JS Global Capital Ltd said supplies from local manufactures had increased in the current season after dormant units also became operational this year due to improvement in feedstock supply.
“Agritech and Dawood Fertilizer have started utilising their production capacities,” Ahmed said.
Previously, fertiliser manufacturers had been struggling to utilise capacity on low gas supply for a couple of years. Though improved gas supply increased capacity utilisation, yet stagnant demand caused a pileup in inventory. The slow expansion in cultivation area this year kept the demand in check.
Taufiq said the impact of discounts on prices is clearly manifesting in the companies’ bottomline.”
Profitability of Engro Fertilizer fell 40 percent to Rs5.7 billion during the nine-month period ended Sept, 2016. Fauji Fertilizer’s earning declined 43 percent to Rs7.3 billion and Fauji Fertilizer Bin Qasim incurred a loss of Rs358 million during the period.
Farmers, however, hailed the current soft prices, demanding further reduction to whet their appetite.
“It is good that they are reducing prices, but it is still much high compared to regional countries,” said Abdul Majeed Nizamani, president of Sindh Abadgar Board. “Input rates, including urea prices, are much higher in Pakistan… a little reduction cannot attract consumers.”