Urea offtake in April 2023 reduced by 11% YoY and 17% MoM to c.408,000 tons. The MoM decline in volumes is due to off-season impact. The market share of EFERT and FFBL increased by 4/2 ppt YoY basis to 38%/9%, while the market share of FFC reduced by 7ppt YoY to 33%, amidst self-imposed measures to pause volumes due to price disparity.

During the month, Urea ex-factory price remained unchanged at PKR2,895/bag- this is the price where almost all companies were selling Urea except FFC. The latter’s Urea ex-factory price was PKR2,455/bag due to no change in MARI field gas prices (the gas supplier of FFC). OGRA has kept gas pricing for MARI unchanged, unlike other fields.

Urea inventory increased to c.242,000 tons at the end of April 2023, compared with c.69,000 tons by the end of March. This is due to commencement of RLNG based plants, post winter closure, and lower offtake of FFC.

DAP offtake reduced by 47% YoY and 1% MoM to c.51,000 tons in April 2023. The YoY decline in offtake is due to the surge in DAP local prices and better and cheaper availability of substitutes. DAP inventory closed at c.285,000 tons, up 4% MoM, due to higher production from FFBL DAP plant, which was initially shutdown due to sluggish demand, but resumed operations in Mar’23.

Urea offtake is expected to remain healthy at 6.3mn tons, in CY23f. Additionally, the pricing power of the sector will likely remain firm amid elevated commodity prices, better international Urea prices and lower inventory levels. DAP offtake in CY23f is also expected to increase to 1.6mn tons, but will likely remain lower than the long term average of 2.0mm tons. However, further reduction in international DAP prices can push offtake above expectations.

We maintain our Market weight stance on the sector, where strong Urea prices and volumes should continue to lift profitability. We prefer FFC (TP PKR120/sh) and EFERT (TP PKR95/sh).

Courtesy- Intermarket Securities Limited.