Urea sales double to 863,000 tons in August

KARACHI: Urea sales doubled year-on-year to 863,000 tonnes in August as farmers, anticipating rise in prices, rushed to build up inventory, a brokerage reported on Friday. 

Analyst Ahsan Ali at Optimus Capital said urea offtake stood at 574,000 tonnes in the same month a year earlier. 

“The jump was due to an anticipated increase in urea prices from September after FFC (Fauji Fertilizer) announced price increase,” Ali said. 

FFC raised urea price by Rs60/bag to Rs1,330-1,340/bag effective from September.  In August, urea sales grew almost two times month-on-month from 339,000 tonnes in July.  In the January-August period, urea sales grew 24 percent to 3.934 million tonnes. 

The industry exported 114,000 tonnes of urea at prices ranging between $200-220/tonne in August. The cumulative exports stood at 293,000 tonnes in the eight month period of the current calendar year. 

“We expect exports to further pick up in the coming months as government’s 31 October deadline approaches,” Ali added. “However, if government expects that local inventory levels will drop to 450,000-500,000 by the yearend due to strong Q4 offtake, it would not extend the deadline or quota for export.” 

In May, the economic coordination committee (ECC) of the cabinet decided to increase the quantity of urea approved for exports from 0.3 million metric tonnes to 0.6 million metric tonnes.  ECC also extended the deadline for export of urea from 28 April to 31 October. 

“These decisions were made by the ECC after considering the proposal of the ministry of commerce, based on the recommendations of the Fertilizer Review Committee,” a statement said. “The ECC was informed that sufficient production and inventory of urea of domestic consumption is anticipated during kharif (summer crops) 2017 for allowing export.”

Fertilizer markers produced 507,000 tonnes of urea in August.  “Due to advance buying by dealers and higher exports, the inventory levels have declined to 684,000 tonnes in August from 1.154 million in July,” the analyst said. “The lower inventory has improved pricing power of local manufacturers.”

In July, urea sales received a massive hammering due to the previous month’s eagerness of buyers to build low-priced inventory as sale of fertiliser sharply fell 56 percent year-on-year and 67 percent month-on-month to 346,000 tonnes in the first month of the current fiscal year.

Government’s subsidy programme brought urea fertiliser price down to Rs1,400/bag during the last fiscal year of 2016/17 from Rs1,800/bag earlier. The subsidy scheme ended on June 30. The urea price will be maintained at the last year’s level under the new subsidy programme.

The country is self-sufficient in fertiliser production with annual capacity of six million tonnes little over total demand. Yet, the government subsidises prices of fertiliser to help farmers sustain the impact of production cost. Unsettled subsidy claims of yesteryears dissuaded fertiliser makers from participating in the subsidy scheme and thereby reducing prices.

They, however, reached a consensus with the government to define mechanism in order to clear outstanding claims worth more than Rs20 billion.  “In the coming months, we expect domestic offtakes to remain slightly weak, as dealers and end users have stocked up, though recovery is expected during the October-December period,” Ali said.