As per NFDC data, Urea offtake during July 2021 clocked in at c.622,000 tons, up 8% yoy and down 10% mom. The yoy increase came in anticipation of the PKR50/bag price hike in August. On a cumulative basis, in 7MCY21, Urea offtake increased by 8% yoy to 3.52mn tons. The market share of FFC and FFBL shrunk by 4/1ppt to 39%/8% in 7MCY21, whereas, EFERT/FATIMA increased by 3/1ppt to 40%/11%.
Urea ex-factory prices were flat mom at c.PKR1,672/bag in July 2021. However, prices are higher by PKR70/bag yoy from the official price of PKR1,602/bag in July 2020. In the month of August 2021, prices increased by PKR50/bag taking Urea prices to PKR1,723/bag.
Industry Urea inventory stood at c.321,000 tons at the end of July 2021, compared with c.432,000 tons in the previous month. Note that despite the resumption of RLNG based plants, Urea inventory levels have declined mom.
DAP offtake declined by c.22% yoy to c.193,000 tons, while rising 184% on mom basis. Decline in offtake is primarily a function of high base effect and significant surge in local and international DAP prices. DAP inventory during the month stood at c.401,000 tons, up 5% yoy during which time DAP prices remained flat. However, prices have increased again to c.PKR5,850/bag in August and are expected to increase further in coming days. The major beneficiary of higher DAP prices will be FFBL.
We expect that offtake and prices of both Urea and DAP will remain elevated in the latter part of CY21, replicating the momentum witnessed in 7MCY21. This has been supported by better crop yields and thus higher purchasing power of farmers amid surging global commodity prices.
The concessionary gas arrangement of EFERT has been discontinued from June end, and now the company is being charged at normal feed gas rates vs. a concessionary rate of US$0.7/mmbtu previously. This change has already been incorporated in our estimates.
We maintain our Marketweight stance on the sector, where healthy DAP primary margins and rise in sales of other fertilizer products will continue to lift the sector’s profitability. We prefer FFC (TP PKR136/sh) and FFBL (TP PKR35/sh) in the space.
Intermarket Securities Limited.