Urea offtake in February 2023 reduced by 5% YoY and 20% MoM to c.503,000 tons. The MoM decline in volumes is due to the off-season impact. The market share of EFERT increased by 5ppt YoY basis to 37% in Feb’23, while the market share of FFBL reduced by 2ppt YoY to 5%, following higher Urea prices amid increased gas prices of SSGC network.

During the month, FFBL increased Urea ex-factory prices by PKR440/bag to PKR2,975 on the back of increase in gas prices for SSGC and SNGPL network, while other manufacturers were selling at PKR2,385/bag. It is possible that dealers continue to charge a premium of PKR600-650/bag to bridge the gap. However, last week FATIMA increased Urea prices by PKR400/bag and EFERT raised Urea prices by c.PKR550/bag today.

Urea inventory declined to c.54,000 tons at the end of February 2023, compared with c.101,000 tons by the end of January. This is due to no production from RLNG based plants (because of gas shortages during winter months), while FFBL also produced a lower quantity in Feb’23.

DAP offtake improved by 76% YoY and 2% MoM to c.96,000 tons in February 2023. The YoY increase in offtake is due to low base effect while producers were trying to link Urea sales to sell more DAP. DAP inventory during the month stood at c.263,000 tons, down 24% MoM amid the closure of FFBL plant, and no imports were made during the month.

Going forward in CY23, Urea offtake is expected to remain healthy at 6.3mn tons. Additionally, the sector will likely enjoy strong pricing power amid elevated commodity prices, strong international Urea prices and the spread between DTR and Urea market prices. DAP offtake in CY23 is expected to rebound 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 marketweight 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.