Morning Briefing for January 02, 2014 – Standard Capital

Karachi, January 02, 2014 (PPI-OT): Engro Fertilizer raised urea prices

As per latest update available to us, Engro Corporation is stated to have raised urea prices by 178/bag effective from 2nd January.

According to Standard Capital, this price is increased due to passing on the additional GIDS to the customers. Standard Capital is also hearing same news from various other players. Now urea would be available at near Rs2000/ bag. Normally in Rabi season, the off-take numbers remain slow hence Standard Capital may sees slightly less off-take in the ongoing season.

Standard Capital remains positives in FFC & Fatima Fertilizer. For Engro Fertilizer, Standard Capital recommends HOLD. Though Standard Capital sees 2014 to be significant for EFL owing to probable impact of full production i.e. 2.1mn tons and favourable feedstock gas supplies from alternate sources as being envisaged from time to time.

Govt approves huge raise in GIDS:
The government may have accorded approval to considerably raise Gas Infrastructure Development Surcharge (GIDS) designed to yield 0.4% of GDP as agreed with International Monetary Fund (IMF) in the Letter of Intent. The government has accorded approval to increase the GIDS on fertilizer from Rs 197 per MMBTU to Rs 300 per MMBTU and from Rs 50 per MMBTU to Rs 100 for industrial units. Hence Standard Capital sees fertilizer plants increasing urea prices.

GIDS to impact fertilizer sector
The government also decided to impose the GIDS on five sectors excluding domestic and commercial sectors. For fertilizer sector under the GIDS gas tariff increased by Rs 197 per MMBTU, industrial sector by Rs 100 per MMBTU (which later was reduced to Rs 50 per MMBTU), the KESC by Rs 27 per MMBTU and Independent Power Plants (IPPs) running on gas by Rs 70 per MMBTU. However, fertilizer plants shall pass on this onto end-users. However, Standard Capital sees this to have an impact on overall off-take numbers since this may decline during early part of 2014.