Pakistan fertilizers industry records another month of bumper sales in May

As per the monthly data released by NFDC, Urea offtake during May 2021 clocked in at c.501,000 tons, up 109%yoy and 62% mom. The surge in offtake was mainly led by the anticipated increase in GST on fertilizer products from 2% to 10% in the FY22 Budget. On a cumulative basis, in 5MCY21, Urea offtake increased by 47% yoy to 2.2mn tons; the sales volumes of FFC/ EFERT/ FFBL increased by a massive 62%/ 95%/ 203% yoy, according to a report prepared by IMS Research.

During the month, Urea ex-factory prices were remain flat at c.PKR1,672/bag. However, prices had increased by PKR68/bag yoy from PKR1,602/bag in May 2020; the jump is primarily due to pass-on of inflationary pressures.

Industry Urea inventory stood at c.612,000 tons at the end of May, compared with c.531,000 tons by end-April. The stock rose because of the resumption of production from RLNG based plants and carry-forward from the previous month.

DAP offtake more than doubled in May to c. 1732,000 tons – up 185% yoy and 279% mom– led by pre-buying amid an increase in sales tax and growing farmer incomes. DAP inventory during the month stood at c.131,000 tons, down 74% yoy; DAP prices were almost unchanged at c.PKR5,380/bag. The recent increase in international DAP primary margins amid increased buying from Indian importers will strengthen core profitability of FFBL.

We expect a similar rise in Urea and DAP offtake in the latter half of CY21 as witnessed during 1HCY21, bolstered by better crop yield and higher purchasing power of farmers due to surging commodity prices.

The continuation of EFERT’s concessionary gas arrangement remains uncertain; and if nothing materializes by the end of June 2021, the company will be charged normal rate for the feed gas for the Enven plant. This is a key drag for overall profitability of EFERT, and we have already incorporated this in our estimates.

We maintain our Marketweight stance on the sector, where the recent increase in DAP margins coupled with rise in other fertilizer products have lifted profitability sector-wide. We prefer FFC (TP PKR136/sh) and FFBL (TP PKR35/sh) in the space.

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