Pakistan is likely to export urea in CY26

Farm economics are showing early signs of improvement, reflected in a 13% YoY recovery in urea offtake during the Kharif 2025 season despite flood-related disruptions. This trend is further supported by the Wheat Policy 2025–26, which restores price predictability by setting a higher minimum support price of PKR3,500/40kg, up from PKR2,200–2,500/40kg in the last harvest season, according to a report by IMS Research.

We see a strong case for urea exports in CY26. Inventories have risen to 1.4 million MT, the highest since May 2017, and are unlikely to be offloaded in the domestic market in the medium term. Nonetheless, we have not included exports in our estimates.

We maintain our Marketweight view on the fertilizer sector. A potential approval for urea exports remains a key catalyst. Within the sector, we continue to prefer FFC due to its stronger core fundamentals, higher dividend income from the power segment, and upward revisions in portfolio valuations.

Farm incomes are improving after a period of stress

We note early signs of recovery in farm incomes. Despite an 8% YoY decline in urea offtake in CY25TD, consumption during the Kharif 2025 season (Apr–Sep) rose a robust 13% YoY, underscoring resilient underlying demand even amid severe flood-related disruptions in Punjab, the country’s key agricultural region. Looking ahead, the recently announced Wheat Policy 2025–26 is expected to further strengthen farmer profitability by restoring pricing predictability. For the current season, the government has set a minimum support price of PKR3,500/40kg, materially higher than the PKR2,200–2,500/40kg range during the last harvest, in the absence of an MSP, in line with IMF directives.

The domestic market may struggle to absorb surplus; Export?

We believe the case for urea export in CY26 is strong given that (i) inventories are at the highest level since May 2017 (when exports were last allowed), and (ii) it’s highly unlikely that these inventories can be offloaded in the domestic market in the medium term. We expect inventories to remain elevated at 1.01 million MT by the end of CY25, potentially marking the highest year-end urea inventory since December 2016. Moreover, we estimate 1.1 million of inventory by the end of the ongoing Rabi season in March 2026. This may prompt ECC to allow urea exports in CY26. However, urea exports may not be required if: (i) ECC decides to curtail gas supply to the two urea plants on SNGP’s gas network with a combined capacity of 0.9mn MT (AGL and FATIMA’s Sheikhupura plant), and (ii) exceptionally high demand during the ongoing Rabi season. We have not incorporated urea exports in our estimates.

Maintaining Marketweight; FFC remains top pick

We maintain our Marketweight stance on the fertilizer sector, with the potential approval of urea exports as a key catalyst. We maintain FFC as our top pick in the sector with revised estimates driven by (i) improvement in core business due to improved farm incomes, (ii) increased dividend income from the power segment, and (iii) revision in the market value of portfolio holdings, along with revised valuation of FPCL. We expect FFC to post CY26/27f EPS of PKR64.66/67.94 with DPS of PKR48.25/50.75, offering a D/Y of 8.2%.