Urea off-take likely to record 43 percent fall in June

KARACHI: Urea sales are expected to fall a staggering 43 percent year-on-year to 600,000 tons in June as water crisis subdued demand of the key agriculture nutrient during the last month.

Analyst Shankar Talreja at Topline Securities on Tuesday said the decline was due to high base effect from the last year. In June last year, an expectation of reduction in subsidy caused urea take-off of one million tons.

“We attribute lower urea sales in June to prevailing water crisis in the country and Eid holidays and Ramazan effects,” Talreja said in a report.

In January-June, urea sales are expected to clock in at 2.7 million tons with a marginal growth of one percent.

Talreja said urea stocks hit the 39-month low of 190 to 200,000 tons in June.

Such a low level of 154,000 tons was recorded in February.

“Sharp decline in inventory is due to closure of Agri Tech’s plant since Sept 2017 amid unavailability of gas and intermittent operations by Fatima Fertilizer due to higher LNG (liquefied natural gas) prices,” the analyst said.

“Due to low urea inventory, we expect urea prices to further increase by Rs50 100 in the mid to end of July 2018 due to demand for rice crop in July and August.”

Urea prices already rose to Rs1,540 1,550 per bag at the start of the current month and urea producers withdrew their cash subsidy contribution of Rs106, taking advantage of the short supply. The government, however, reduced sales tax on urea to two percent with effect from July as compared to five percent earlier.

Talreja said the gas tariff hike is to push up production cost of fertiliser markers and they will pass its impact on to consumers.

In June, urea production is expected to down 6.5 percent year-on-year to 465,000 tons, owing to disrupted operations of Agri Tech Limited amid absence of natural gas supply. Urea output, however, increased 19 percent month-on-month in June as one of Engro Fertilizer’s plants was closed for a few days for scheduled maintenance.

In June, sales of diammonium phosphate (DAP) are expected to clock in

at 170,000 tons, up 50 percent year-on-year, taking DAP total sales during the January-June period to around 660,000 tons, up 15 percent year-on-year.

“(June) higher DAP sales were due to stock hoarding by dealers amid expected rise in DAP prices coupled with its seasonal buying for rice/cotton crop,” Talreja said. “We believe next uptick in DAP sales would be witnessed post September.”