Karachi, August 04, 2021 (PPI-OT): Fertilizers: Urea Offtake expected to increase by 8% YoY in Jul-2021

As per provisional data, Urea sales in Jul-2021 are expected to clock in at 622k tons, up 8% YoY. Urea production on the other hand is expected to be 510k tons for the month which will take urea’s closing inventory for Jul-2021 to ~320k tons.

DAP offtake for the month of July is expected to clock in at ~192k tons vs. 248k tons in SPLY depicting a 22% YoY dip.

Urea prices in the local market have increased by Rs50/bag effective 1st August, 2021. Recent increase in crop prices and production make a strong case for higher fertilizer prices going forward.

Jul-2021: Urea sales may increase by 8% YoY

As per provisional data, Urea sales in Jul-2021 are expected to clock in at 622k tons, up 8% YoY. Urea production on the other hand is expected to be 510k tons for the month which will take urea’s closing inventory for Jul’21 to ~320k tons.

For the month of Jul-2021, Engro Fertilizer (EFERT) is expected to post Urea sales volume of 240k tons followed by Fauji Fertilizer (FFC)’s estimated offtake of 237k tons (including neem coated Urea) while Fauji Fertilizer Bin Qasim’s (FFBL) offtake is expected at 50k tons. Cumulative offtake for 7MCY21 is anticipated to be 3.5mn tons as compared to 3.2mn tons in the SPLY, reflecting a 9% YoY increment.

DAP sales likely to decline by 22% YoY during Jul-2021

DAP offtake for the month of July is expected to clock in at ~192k tons vs. 248k tons in SPLY depicting a 22% YoY dip. This sequential decline in offtake is due to the high base effect as some clarity on subsidy to the tune of Rs37bn was given during first week of July last year on Phosphatic and Potassic fertilizers. DAP offtake for 7MCY21 will likely clock in at 792k tons vs 669k tons in 7MCY20, marking an 18% YoY increase.

Fauji Fertilizer Bin Qasim’s (FFBL), the sole manufacturer of the product, is expected to post offtake of 93k tons during Jul-2021. Engro Fertilizer (EFERT) and Fauji Fertilizer (FFC) are expected to post DAP sales volume of 36k tons and 26k tons during the same period, respectively.

Upward price revision cannot be ruled out

Urea prices in the local market have increased by Rs50/bag effective 1st August, 2021. We highlight that local urea prices are still at a significant discount of around 62% to international prices. Recent increase in crop prices and production also make a strong case for higher fertilizer prices going forward. With better demand-supply situation, urea pricing power would be comparatively more beneficial for FFC and any increase in prices will lead to positive surprise in earnings and dividends for the company.