Urea sales slip 8 percent as farmers stock up ahead of subsidy cut

KARACHI: Urea sales slipped 8 percent in May 2018 for the most part on account of subdued demand after growers as well as traders stocked up on the fertiliser ahead of yet another price hike that looms large as the government plans to slash subsidy, analysts said on Monday.

Urea sales during the period under review reached 480,000 metric tons compared to 521,000 metric tons in the same period last year, showing a drop of 8 percent.

An analyst from Topline Securities said prevailing water shortage of around 40 percent as reported by media and showed by Indus River System Authority (IRSA) statistics coupled with pre-season stock accumulation by dealers/farmers in anticipation of rise in urea price led to a decline in urea sales.

However cumulative figures for the five months starting January 1, 2018, showed the sales of urea climbed by 28 percent to 2.1 million tons.

Among players, Fauji Fertilizer (FFC) and Fauji Fertilizer Bin Qasim (FFBL) are expected to outperform the industry by posting a growth of 14 percent on a year-on-year basis each in their urea off-take, clocking in at 254,000 and 60,000 tons respectively.

However, Engro Fertilizer (EFERT) is likely to 4 percent to 134,000 tons. Urea inventory during May 2018 is estimated to hover around 380,000 tons versus 434,000 tons in Apr 2018.

The Topline analyst added that during the month, urea prices went up by Rs100/bag to Rs1500/bag as government eliminated cash subsidy of the same amount in budget 2018-19.

“Chances are that urea prices may rise by Rs60-100/bag post July 2018 as manufacturers are expected to withdraw their cash subsidy contribution of Rs106/bag,” the analyst said.

On the other hand, diammonium phosphate (DAP) prices went up 2.5 percent on month-on-month basis to around Rs3,220/bag due to gradual pass-on of currency devaluation and an increase in the prices of phosphoric acid.

Tahir Abbas, an analyst at Arif Habib Corporation, said the DAP sales remained subdued as off-take declined 49 percent to 35,000 tons, compared with same month of 2017.

Furthermore, during five months of 2018, the DAP sales exhibited a slight decline of 2 percent to stand at 468,000 tons.

“We view that with lower urea inventory levels and expected demand in the upcoming season would lead towards expected shortage of urea in country, ranging from 200,000 to 300,000 metric tons,” Abbas said.

He added that it would further increase pricing power of local manufacturers going forward and eventually maximise urea prices in 2018.