Urea sales stagnant in 2023 amid low stocks and high prices

LAHORE: Urea fertiliser sales were flat in 2023 at 6.6 million tonnes, as low inventories and high prices dampened demand in the last quarter of the year, industry data showed on Thursday.

The demand in 2022 plunged following deluged farmland as a result of catastrophic floods. Urea offtake in December fell 24 percent year-on-year to 630,000 tonnes.

The decline was mainly due to weak sales in the sowing and early stage of the wheat crop, which accounts for about 60 percent of the annual urea consumption in the country, analysts said.

The urea inventory at the end of December stood at 64,000 tonnes, one of the lowest levels on record and well below the required buffer stock of 200,000 tonnes. "Despite dull urea offtake, the closing inventory of fertilizer stands at as low as around 64,000 tonnes as of December, 2023 which is much lower than required buffer stock of around 200,000 tonnes to keep supply chain alive," said a sector analyst.

"The weak sales in the sowing/early stage of wheat crop during the month of December have been attributed to increased prices and low availability."

The trend may continue in January too as market dynamics expected to prevail. FFC is expected to post upside both on a year-on-year and month-on-month basis in urea offtake, as the company had uninterrupted operations. Engro Fertilizers Ltd, on the other hand, is likely to post a 3 percent/4 percent year-on-year/month-on-month decrease in urea sales," said analyst Muhammad Waqas Ghani at JS Global.

"On the other hand, offtake of Diammonium Phosphate (DAP) is down 11 percent year-on-year and 50 percent month-on-month in Dec-2023 due to seasonal factors."

However, in full year 2023, DAP offtake is expected to increase by 31 percent year-on-year to 1.6 million tonnesdue to low base effect of last year amid floods. The closing inventory of DAP stands at around 25,000 tonnesas of Dec-2023.

"DAP offtake for Dec-2023 is expected to clock in at 138,000 tonnes, depicting a drop of 12 percent/50 percent year-on-year/month-onmonth over pre-buying in previous months and a high base owing to delayed offtake in CY22 Rabi season due to monsoon floods," Ghani added.

Fauji Fertilizer Bin Qasim Limited, sole manufacturer, is expected to post offtake of 74,000 tonnes. EFERT is expected to achieve DAP sales volume of 31,000 tonnes for the month as it was able to import DAP. FFC, on the other hand, is anticipated to post nil DAP sales owing to lack of inventory caused by delayed shipment.

Referring to recent increase in urea prices, on the back of clarity on gas pricing for MARI based fertilizer companies, FFC has now bridged the gap between EFERT and its Urea prices through a price increase of Rs187/bag, effective today. Both companies now have a selling price of Rs3,596/bag. Alongside FFC, FFBL has also increased its Urea prices by Rs187/bag taking its price to Rs3,981/bag.

"The fertilizer sector has demonstrated resilience to cost hikes," Ghani said. "We reiterate our view that fertilizer companies have strategically positioned themselves to effectively handle escalations in input costs."

To recall, the fertilizer sector has proven its ability to swiftly absorb consequences of gas price hikes multiple times in the last year. The same was also observed during elevated taxes and duties announced in the budget for FY24. "We anticipate that, in accordance with the IMF directive aimed at tackling circular debt, regular increases in gas prices will now be a routine for the business landscape."