Equity Analysis /
Pakistan

Pakistan Fertilizers: April 2022 – DAP offtake surge in April

  • Urea offtake in April 2022 decreased by 10% mom but increased by 48% yoy to c.459,000 tons

  • Industry Urea inventory rose to c.318,000 tons, due to the import of c.100,000 tons in March-April

  • DAP offtake more than doubled yoy and up 22% mom to c.95,000 tons; DAP inventory stood at c.336,000 tons

Intermarket Securities
27 May 2022

Urea offtake in April 2022 decreased by 10% mom, while increasing 48% yoy to 458,952 tons. The yoy increase is led by better farm economics and low base in SPLY. On a cumulative basis, in 4MCY22, Urea offtake increased by 23% yoy to 2.09mn tons. The sales volumes of FFC and EFERT increased by 44%/43% yoy, whereas that of FFBL declined by 9% yoy.

Urea ex-factory prices had reached PKR1,880-1,980/bag in April 2022. The premium in the local market remained unchanged as well, hovering around PKR200-250 per bag due to anticipation of further increase in Urea prices. However, end user prices in the local market are currently hovering above PKR2,500/bag due to fears of prolonged closure of sales from the Fertilizer producers following the government’s decision to revert Urea prices to PKR1,768/bag.  

Industry Urea inventory levels increased to c 318,000 tons at the end of April 2022, compared to c 200,000 tons at the end of March. This is attributed to import of c 100,000 tons of Urea in the last two months and lower monthly offtake.

DAP offtake more than doubled yoy and up 20% mom, to c 95,000 tons. The yoy increase is majorly led by low base effect. DAP inventory during the month stood at c 336,000 tons up c 2.5x yoy and 22% mom.

In CY22, we believe that better availability of gas to local producers, higher offtake amid better farm economics, and higher commodity prices, will help the Fertilizer sector post healthy earnings and payout. However, the recent price fixation is likely to reduce earnings. In the international market, Urea prices continued to remain elevated.

We maintain our Overweight stance on the sector, due to higher Urea offtake and elevated DAP margins. Despite the recent Urea price fixation by the government, the sector is likely to retain a handsome DY. Also, potential legal action against this measure may cushion any decline in revenues going forth. We prefer FFC and EFERT in the space.