Urea prices feared to rise Rs600/bag on gas tariff hike

LAHORE: Urea prices are feared to shoot by 30 percent or approximately Rs600 per 50 kilograms as a result of recent hike in gas tariffs increasing likelihood of further decline in nutrient sales for the current winter crops, industry officials said on Tuesday.

The officials said gas price increase would lead to significant inflationary pressures on almost all sectors of economy and such a massive subsequent jump in cost of fertiliser is bound to deal a serious blow to agriculture sector.

Fertiliser industry would pass on the gas price hike and lead to increase in urea prices to Rs2,640/bag from Rs2,040/bag.

On Tuesday, Oil and Gas Regulatory Authority increased gas prices for fertiliser industry by 135 percent, which is effective from January 1, 2020.

Analysts said the government’s step is to resolve the issue of circular debt of gas sector. But, the increase is not sustainable and would create massive inflation across the board.

“The government should pass on such increases at an appropriate pace and while implementing these changes should institute adequate monitoring mechanisms to ensure that the traders don’t end up making it an excuse to make exorbitant increases in the prices of daily consumables,” an industry official said. “Subsidy for the poor people and small farmers should be introduced concurrently to ensure that the impact of these increases may be absorbed by citizens and farmers below certain level.”

Farmers are in dire need of this macronutrient while cultivating strategically important wheat crop.

“With demand for other phosphorous-based fertilisers largely catered to by local players, any increase in gas prices would lead to prices of DAP (diammonium phosphate) and other fertilisers to momentously increase as well,” an industry official said. “This eventually may offset positive impact of increasing wheat support price, rendering growers in extreme discomfort.”

Wheat is major winter crop (Rabi season) that mainly needs urea fertiliser on sowing. There has been persistent increase in urea price in the last couple of years due to multiple reasons.

Food Minister Khusro Bakhtiar recently expressed his concern over high urea prices that discourage offtake of fertiliser. Urea sales might fall 20 percent year-on-year to 398,000 tons in November, a brokerage’s analysis said. Urea sales for the January-November were estimated at 4.9 million tons, down four percent year-on-year.

“The decline in urea off-take is due to increase in urea prices by Rs200 per bag in September 2019,” the brokerage said in a report. In September, fertiliser sales fell nine percent year-on-year to 679,000 tons as there was a double-digit dip in urea consumption during the month. The National Fertilizer Development Centre’s data showed that urea sales declined 16 percent year-on-year to 405,000 tons in September. Urea sale volume stood at 482,000 tons in the corresponding month a year earlier.