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Gas Price Revision Affects Fertilizer Sector, Minimal Impact Compared to Other Industries

Karachi, In a significant development for the fertilizer industry, the Oil and Gas Regulatory Authority (OGRA) has announced a revision in gas prices, effective November 2023. This adjustment sees an increase in prices for all categories, with the fertilizer sector on the SUI network experiencing a change from PkR510/mmbtu to PkR580/mmbtu for feed gas, and from PkR1,500/mmbtu to PkR1,580/mmbtu for fuel gas. Notably, the announcement did not address pricing for the MARI network, leading to concerns over transparency.

According to AKD Research, the impact of this price change on fertilizer companies is relatively small compared to other sectors, which have witnessed price increases ranging from 60% to 200%. The fertilizer sector, crucial for agriculture, continues to receive government protection to keep urea prices affordable for farmers. This protection has resulted in domestic urea prices being 40%-50% lower than international rates.

The country's annual demand for urea, previously between 6.0 and 6.5 million tonnes, rose to approximately 6.7 million tonnes in the calendar year 2022. This trend is expected to continue, bolstered by the anticipated growth in agricultural activities and corporate farming. October 2023 saw a 7% year-over-year increase in urea offtakes, though there was a 19% decline compared to the previous month. This fluctuation is attributed to higher-than-expected sales in the third quarter of 2023 due to anticipated price hikes. Excluding FATIMA's Sheikupura plant, all other producers experienced a decline in offtake numbers.

Diammonium phosphate (DAP) volumes, however, continued to show robust growth, with a 122% increase year-over-year and a 50% increase month-over-month. This growth is linked to the preparation for the Rabi'23 season and anticipation of further global price increases. Domestic DAP prices have reached around PkR13,000 per bag, influenced by rising raw material costs, particularly global phosacid prices.

Fertilizer prices have reached record highs, with the current Urea Maximum Retail Price (MRP) at approximately PkR3,400 per bag and DAP MRP exceeding PkR12,000 per bag. These levels challenge the highs set post-COVID-19 commodity boom. Market prices have also been elevated, drawing government attention to prevent illicit profiteering.

The gas price revision is part of efforts to address the growing circular debt and is crucial for a successful International Monetary Fund (IMF) review. While OGRA's notification includes price increases across industries, it remains silent on the MARI network companies. This ambiguity raises questions about whether companies like FFC and FATIMA will continue receiving gas at previous rates or at the new increased rates.

The post Gas Price Revision Affects Fertilizer Sector, Minimal Impact Compared to Other Industries appeared first on Pakistan Business News.

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