According to NFDC data, urea offtake in September 2021 increased by 24% yoy to c.487,000 tons but fell 25% mom. The yoy increase was mainly due to low base effect as June to August saw bumper sales last year. On a cumulative basis, in 9MCY21, Urea offtake increased by 11% yoy to 4.66mn tons. The market share of FFC and FFBL shrunk by 5/1ppt to 39%/8% in 7MCY21; whereas, that of EFERT/FATIMA increased by 3/1ppt to 40%/11%.
Urea ex-factory prices were flat mom at c.PKR1,730/bag in September 2021. However, prices were higher by PKR100/bag yoy from the official price of PKR1,630/bag in September 2020. We expect that the Urea prices are expected to increase by PKR50-70 per bag from November onwards.
Industry Urea inventory stood at c.116,000 tons at the end of September 2021, compared with c.187,000 tons by the end of the previous month. The mom decline in inventory level is due to the maintenance shutdown of EFERT plant.
DAP offtake declined by c.3% yoy to c.221,000 tons while rising 19% mom basis. Despite the massive jump in DAP prices in 9MCY21, DAP sales remained strong and declined by only 12% yoy to 1.2mn tons. DAP inventory during the month stood at c.221,000 tons, down 3% yoy.
Also, during the month, DAP prices increased from PKR450/bag to PKR6,340/bag. As of today, DAP prices have further increased to PKR7,300 and are expected to increase further. The primary beneficiary of the increase in DAP is FFBL.
Offtake and prices of both Urea and DAP are expected to remain elevated in the last quarter of CY21, sustaining the momentum from 9MCY21. Better crop yields and higher purchasing power of farmers amid surging global commodity prices support the overall growth trajectory.
Local Urea prices have surged to PKR2,050/bag in anticipation of an increase in GST on Urea and other fertilizer products from the current level of 2%.
We maintain our Market weight stance on the sector, where healthy DAP primary margins and rise in sales and prices 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.
Courtesy – Intermarket Securities Limited