AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, November 28, 2012 (PPI-OT): Contrary to the historic trend, the month of October was very disappointing for fertilizer sales with urea and DAP both recording sequential decline in sales.
According to AKD Securities, uncertainty over urea price outlook, particularly given the looming threat of further imports was the main reason behind the sharp fall in urea demand. DAP sales were also down by 12%MoM to 184k tons. Urea demand sentiment in Nov’12 is likely to have been dented by news flow regarding possible PKR 150/bag reduction in prices; however demand is expected to rebound sharply in Dec’12 as price decline has yet to be notified, while wheat sowing season will be in full flow. Urea import threat could still persist in 2013 as the government is planning to import 1.2 million tons of urea in FY13 and in this regard is looking for a US$100 million credit facility from Saudi Fund for Development (SFD), white int’l urea price outlook is benign given the expectation of decline in China urea export tariffs. FATIMA remains AKD Securities’ top pick in the fertilizer sector given insulation from gas curtailment, diversified product base and encouraging trend in NP sales (+173% MoM in Oct’12 to 43k tons).
Urea sales disappoint in Oct’12: Contrary to the historic trend, the month of October was very disappointing for fertilizer sales with urea and DAP both recording sequential decline in sales. Urea sales were down by 11%MoM to 234k tons, while in comparison to last year; sales were down by 55%. Uncertainty over urea price outlook, particularly given the looming threat of further imports was the main reason behind the sharp fall in urea demand. DAP sales were also down by 12%MoM to 184k tons, however on a YoY basis decline was relatively less pronounced (-10%).
| Fertilizer offtake 10MCY12 | |||||
| (000 tons) | 10MCY12 | 10MCY11 | Y/Y | Oct-12 | MoM |
| Urea |
3,957 |
4,760 |
-17% |
234 |
-11% |
| DAP |
816 |
852 |
-4% |
184 |
-12% |
| Company wise offtake |
|
|
|
|
|
| Urea |
|
|
|
|
|
| FFC |
1,748 |
2,005 |
-13% |
135 |
-7% |
| FFBL |
215 |
363 |
-41% |
18 |
4% |
| ENGRO |
634 |
1,021 |
-38% |
41 |
-18% |
| FATIMA |
214 |
355 |
-40% |
7 |
-32% |
| DAP |
|
|
|
|
|
| FFBL |
422 |
523 |
-19% |
58 |
-69% |
| ENGRO |
181 |
223 |
-19% |
84 |
963% |
| Other products |
|
|
|
|
|
| FATIMA (CAN) |
259 |
272 |
-5% |
12 |
-23% |
| FATIMA (NP) |
206 |
66 |
214% |
43 |
173% |
| Source: NFDC and AKD Research | |||||
Urea sales heading for a third consecutive year of demand decline: 10MCY12 urea sales stood at 3.96 million tons, down by 17%YoY. Urea offtake for CY12 is likely to stand at 5.3 million tons (-11%YoY), which will be 9% lower than last five year average of 5.8 million tons. Furthermore, CY12 will also mark a third consecutive year of urea sales decline. DAP has fared relatively better with 10MCY12 offtake down by just 4%YoY, as average price of DAP has actually declined by 1% CYTD compared with urea price hike of 23%. Furthermore, inventory buildup is also manageable when compared with urea.
Urea sales likely to rebound in Dec’12: Urea demand sentiment in Nov’12 is likely to have been dented by news Bow regarding possible FkR150/bag reduction in prices, due to a mix of reduction in GST as well as GIDC. However, price decline has yet to be notified and in turn the GoP has actually raised wheat support price by PKR 150/maund. With the wheat sowing season in full flow, AKD Securities expects Dec’12 urea sales to rebound sharply and partially make up for expected lower sales in Nov’12.
Urea imports could still boa threat in CY13: As per news reports today, the government is planning to import 1.2 million tons of urea in FY13 (1.4 million tons imported in 4MFY13) which is likely to cost US$588 million. In this regard, the government has approached Saudi Fund for Development (SFD) for financing of US$100 million for urea imports, where previously SFD provided US$200 million in CY09 and US$100 million in CY11 for urea imports. Urea prices in the international market have remained range bound, and could remain so in the near future given the possibility of Chinese authorities lowering the urea export price floor. Recall, China is the world’s largest urea exporter, where during 1HCY12, int’l urea prices spiked following sharp reduction in China exports.
Recommendation: FATIMA remains AKD Securities’ top pick in the fertilizer sector given insulation from gas curtailment, diversified product base and encouraging trend in NP sales (+173% MoM in Oct’12 to 43k tons). Besides urea sales risk, reduction in urea prices could result in NRV losses for AKD Securities’ fertilizer universe companies especially FFC and ENGRO, which could result in price underperformance in the near term.