According to the 1Q2022 report of Engro Fertilizer, encompassing market overview, amidst Russia – Ukraine crises, urea prices have increased to USD 1,005/T (landed equivalent PKR 11,741/bag) by the end of Q1 2022 from USD 957/T (landed equivalent of PKR 10,891/bag) prevailing at the end of 2021.
However, the Pakistan fertilizer industry has ensured that local farmers continue to benefit from low prices of domestically produced urea despite international commodity price escalations. Domestic urea prices are hovering around PKR 1,918/bag and are currently at a discount of approximately 84% to global prices.
DAP international prices continued their upward trajectory and have witnessed a significant jump of 12% during the period, with offers quoted as high as USD 1,025/T by the end of Q1 2022. Consequently, local DAP prices, reflecting a similar trend, have increased from PKR 8,974/bag at the end of 2021 to PKR 10,018/bag by Q1 2022. Increasing DAP prices coupled with slow disbursement of subsidies on phosphatic fertilizers have led to a contraction in the DAP industry by 24% vs last year.
Significant discounts on urea coupled with an unprecedented increase in prices of other fertilizers will further push the unbalanced use of fertilizers, potentially influencing crop yields.
Following the momentum built over last year, farm economics continued to improve on the domestic front, driven by better farm output prices and improved support prices.
Local urea market demand stood at 1,633 KT vs 1,397 KT in Q1 2021, translating into an increase of 17% versus the same period last year. Growth in demand for urea has resulted from improving farm economics coupled with the increasing price disparity of urea compared with other fertilizers. Meeting this demand has been made possible with operations of all the urea plants, as domestic urea production stood at 1,682 KT vs 1,403 KT during the same period last year.
Other Key Developments
In the last quarter of 2021, pocket shortages of urea occurred in the local market. However, a proactive partnership between the government and industry resulted in alleviating the situation by the end of January 2022. During the quarter, 100 KT of urea was imported to manage inventory levels.
Going forward, the government is continuing its efforts to ensure an adequate supply of fertilizers for the upcoming Kharif season. The industry has been asked to build a safety stock of urea of 200KT by April 20, 2022. Furthermore, the operation of RLNG plants throughout the year is also being contemplated to ensure an adequate supply of urea.