KARACHI: Pakistan urea sales during November 2018 were down 21% YoY taking 11M2018 sales to 5.1mn tons, down 1% YoY.
“Lower sales during outgoing month were due to early procurement by dealers and farmers amidst expectations of price hikes in Oct (Sept sales up 168% YoY) and delay in sowing season due to halt in start of sugar cane crushing by millers,” Shankar Talreja at Topline Securities said.
During November 2018, urea production is likely to increase by 22% YoY on back of the start of urea production by Fatima Fertilizers and Agritech (contributing around 60-70k tons) and low base effect of Engro Fertilizer’s production (145k tons in November 2018 vs. 119k tons in November 2017).
“Closing inventory of urea during November 2018 is expected around 245k tons. Reportedly, first shipment of 50,600 tons of imported urea arrived Pakistan last Sunday and further 50,000 tons will reach by this week”.
Among companies, Fauji Fertilizer (FFC) and Fauji Fertilizer Bin Qasim (FFBL) are likely to post decline of 8% and 6% YoY respectively in urea sales during November 2018.
Similarly, Engro Fertilizer’s volumes would be down by 2% YoY.
“We maintain our market weight stance on fertilizer sector given possibility of further hike in gas tariff. Further, government is more focused on improving farmers economics by reducing their cost of input (which is inline with their manifesto). Amid aforementioned reasons, we believe, margins of urea manufacturers could face headwinds in near term”.
Key risks to fertilizer industry include decline in international urea prices, slower than expected urea sales, poor crop season, sharp hike in domestic gas price and rupee devaluation.