Equity Analysis /
Pakistan

Pakistan Fertilizers: Offtake rises amid lower prices

  • Urea offtake for February 2020 was 460k tons, rising 76% mom and 19% yoy

  • DAP’s offtake stood at 87.6k tons in February, up 80% yoy

  • We have an Overweight stance on the sector, with the GIDC removal a key positive

Intermarket Securities
20 March 2020

As per NFDC data, Urea offtake for February 2020 was at 460k tons, rising 76% mom and 19% yoy. On a cumulative basis, however, Urea offtake decreased by 24%yoy to 722k tons during 2MCY20. The Urea offtake of FFC and FFBL were up by 80% and 2.6x yoy in February respectively. EFERT’s Urea offtake was, however, down 39% yoy to 80k tons; its offtake declined due to higher per bag price as compared to that of Fauji group and FATIMA. Both the latter companies almost fully passed on the impact of GIDC reduction. EFERT reduced its prices by PKR160/bag as compared to GIDC being reduced byPKR400/bag.

DAP’s offtake stood at 87.6k tons in February, up 80% yoy. During 2MCY20, DAP offtake increased by 6% yoy to 131k tons mainly due to lower base effect. The inventory levels stood at 473k tons, where major portion was held together by FFBL, FFC and EFERT.

The first two months of CY 20 were quite eventful for the fertiliser industry. Following the nearly complete removal of GIDC on both feed and fuel gases, Fertilizer manufacturers initially held back most of the benefit, but eventually FFC and FATIMA reduced prices by PKR375/bag. EFERT, on the other hand, has been resisting any reduction in urea prices, and this is evidently taking its toll on their offtake. EFERT managed to sell only 155k tons during 2MCY20 (down 47% yoy), its market share falling 10ppt yoy to 21%. If the government allows RLNG based plants to operate on concessionary prices, then they will take away more of EFERT’s market share, in our view. Their inventory level also reached 236k ton by end February.

The ECC recently decided to increase wheat support prices to PKR1,400/ton from PKR1,365/ton. Lower Urea prices and better food commodity prices will motivate farmers to focus on improving yields. This will eventually increase Urea and DAP offtakes, in our view.

We have an Overweight stance on the sector, where the GIDC removal is a key positive for the sector and dividend yield remains attractive given monetary easing has commenced, in our view.