Karachi, December 05, 2022 (PPI-OT): Nov-22: Plant turnarounds to impact Urea offtake
As per provisional data, Urea sales in Nov-2022 are expected to clock in at 551k tons, down 4% YoY. Whereas, DAP offtake for the month of November is expected to clock in at ~231k tons vs. 220k tons in SPLY depicting an increase of 5% YoY.
We believe that opportunity cost due to dampened demand during 4QCY22 will keep stock prices in check for the short term. The extended plant turnarounds have further impacted production for the last quarter of CY22.
We however maintain our Overweight stance on the Fertilizer sector as the sector’s cash rich position directs at sustainable pay-outs for the future. The sector offers a CY23 D/Y of ~16%.
Nov-2022: Urea sales may decrease by 4% YoY
As per latest provisional data, Urea sales in Nov-2022 are expected to clock in at 551k tons, down 4% YoY. For the month of Nov-2022, Fauji Fertilizer (FFC) and Engro Fertilizer Ltd (EFERT) are expected to post Urea sales volume of 210k tons and 96k tons, respectively. Fauji Fertilizer Bin Qasim’s (FFBL) off-take is expected at 65k tons.
EFERT’s Base plant, remained offline for maintenance activity for the past two months. The plant has recently resumed operations on November 27, 2022. To recall, the company’s Enven plant with a capacity of ~1.3mn tons also tripped last week and the company is working to restore the unit by 6th Dec-2022.
This would take the cumulative 11MCY22 offtake to 5.75mn tons, flat compared to SPLY. Assuming Urea production of ~450k tons for the month, urea’s closing inventory comes to around 348k tons for Nov-2022.
DAP off-take for Nov-2022 is expected to clock in at ~231k tons depicting a 5% YoY increase. FFBL, sole manufacturer of the product, is expected to post offtake of 135k tons during Nov-2022. FFC and EFERT on the other hand, are expected to post DAP sales volume of 6k tons and 50k tons during the same period, respectively. Offtake for 11MCY22 is expected to clock in at 1.04mn tons, a 41% YoY drop.
Long term story intact regardless of short-term headwinds
We maintain our Overweight stance on the Fertilizer sector as it is likely to continue to report a stable revenue stream going forward whereas its cash rich position also directs at sustainable pay-outs for the future. The sector offers a CY23 D/Y of ~16%.
Fertilizer sector offtake is expected to take a hit in the Rabi season due to the flash floods as impacted agriculture land will have lower demand for fertilizers. In the medium term, we believe that opportunity cost resulting from dampened demand in the last quarter will restrain stock prices. A further blow to near term profitability maybe expected from lower production due to prolonged plant turn-arounds by fertilizer manufacturers during 4QCY22.