Fertiliser offtake presents gloomy outlook

LAHORE: Multiple factors have hampered fertiliser offtake in the country, and it is feared that this trend will continue until the end of the calendar year. The domestic agriculture sector has experienced considerable upheaval during this period, particularly due to the wheat marketing crisis and low selling prices for maize, cotton, paddy and sesame, which have adversely affected farmers’ financial situations.

Consequently, fertiliser offtake stagnated during the early months of the year, and its usage is now declining compared to last year’s trend. Inclement weather has also led to a reduced application of fertilizers.

Dull demand has been blamed for the lower urea offtake in August 2024. It is estimated that the utilization of farm nutrients stood close to 554,000 tonnes, down 14 per cent year-on-year (YoY). On a sequential basis, sales volume is likely to decline by 9.0 per cent month-on-month (MoM). Cumulatively, urea offtake during 8MCY24 is projected to reach 4.2 million tonnes, down 4.0 per cent YoY, according to JS Research.

The situation for di-ammonium phosphate (DAP) is even bleaker. The sales volume of DAP has been assessed at around 80,000 tonnes for the month, down 70 per cent YoY. On a sequential basis, DAP volume is poised to decline by 51 per cent MoM. DAP offtake during the first eight months of 2024 is expected to hover around 792,000 tonnes, down 11 per cent over the same period last year.

Insiders report that farmers are becoming increasingly demoralized by the slim prospect of obtaining fair prices for their crops this year, leading them to cut back on input expenditures. Although fertiliser expenses represent only a fraction of total farming costs, the combined effects of climate change, falling crop prices and escalating production costs are placing considerable strain on farmers’ incomes. Consequently, this financial pressure is expected to affect fertiliser demand in the future, raising concerns that the output of various crops will be adversely affected due to low usage of chemical fertilisers.

According to the National Fertiliser Development Centre (NFDC), the decline in offtake may also be attributed to the late sowing of Kharif crops as a result of climate change, economic recession caused by low wheat prices and a significant reduction in cotton acreage in Punjab (20 per cent) and Sindh (12 per cent).

During Kharif 2024, which will end in September, the total availability of urea is estimated at 337,000 tonnes, comprising domestic production of 320,000 tonnes and 174,000 tonnes of carryover stock. Urea offtake estimates for Kharif 2024 are projected at 296,000 tonnes, with a closing balance around 393,000 tonnes. Such a sizable carryover further indicates low nutrient usage during the Kharif period.

Disparity in urea prices continues due to differences in gas tariffs between MARI and SNGP & SSGC-based fertilizer companies, with MARI-based players benefiting from feed gas priced at approximately 64 percent below that of the remaining sector. FFC and EFERT stand out in the sector, offering estimated dividend yields for the calendar year 2025 of 17 per cent and 19 per cent, respectively, with the base case assuming that FFC’s relative advantage over its peers will eventually dissipate.

A report indicates that global fertiliser prices have remained relatively stable throughout the period. By the end of June 2024, urea prices were recorded at $319 per tonne, equivalent to Rs5,962 per bag, an increase from $260 per tonne, which equated to Rs3,706 per bag at the end of June 2023. The fertiliser industry continues to ensure that local farmers benefit from the lower prices of domestically produced urea, which was priced at Rs4,649 per bag as of June 30, 2024, reflecting a 22 per cent discount compared to international prices.