Equity Analysis /
Pakistan

Pakistan Fertilisers – Strong Urea offtake in May

    Intermarket Securities
    25 June 2019

    According to data released by the NFDC, Urea offtake for May 2019 was at 593,000 tons versus 494,000 tons in May 2018, up 20%/2.03x yoy/mom. The sequential uptick in urea offtake was led by seasonality. A similar trend is likely to be observed in the coming months as offtake remains robust during the Kharif season. 

    On a cumulative basis, Urea offtake was 2.25mn tons in 5M CY 19, up 6% yoy. Despite the growth in demand, FFC, EFERT and FFBL have seen market share attrition during CY 19td as imports and LNG-based manufacturers took a greater share. As a result, FFC/FFBL/EFERT reported decline in urea offtake by 9%/34%/4% yoy, respectively. However, FATIMA reported an increase in offtake by 17% yoy. 

    The production levels of urea for May reached 527,000 tons, up by 35% yoy. The significant jump in production can be attributed to a lower base in May 2018 due to the turnaround of Engro's plant (139,000 tons in May’19 vs. 84,000 tons in May’18). Strong pick-up in Urea led to a drop in inventory levels to 266k tons, down by 19% yoy. That being said, import of 100,000 tons of Urea by the government is likely to help in maintaining buffer stock amid peak season. 

    DAP offtake for May’19 posted impressive growth of 3.6x yoy to 213,000 tons. The increase in offtake is in anticipation of a further hike in DAP prices amid PKR devaluation and negative implication of budgetary measures. With strong growth in overall offtake, FFBL posted strong recovery in DAP sales of 9.2x/2.0x yoy/mom. On a cumulative basis, DAP offtake remained flattish at 488,000 tons during 5M CY 19, down by 1% yoy. The inventory levels stood at 503,000 tons, up 30%yoy, where the major chunk is held by FFC and FFBL. We believe a further hike in DAP prices is likely on the cards amid PKR devaluation, which is likely to cause a drag on the demand front.