May-11 Fertilizer offtake plunged on lower availability!

May-11 offtake decline on lower availability: During the month of May, dispatches of both Urea and DAP plunged by 20% YoY and 39% YoY primarily on the back of lower availability of fertilizer due to gas cuts. Similarly, during 5MCY11 both Urea and DAP offtake declined by 11% YoY mainly due to lower availability of gas, hampering supply.

FFC and Engro witnessing volumetric jump: FFC and Engro witnessed a jump in Urea sales of 9.5% YoY and 47% YoY respectively. While FFBL and DAWH witnessed 10% YoY and 43% YoY decline primarily due to lower availability of gas hampering supply. Production of FFBL and DAWH declined by 7% YoY and 53% YoY respectively.

Shortage to ease with commencement of EnVen: Engro recently announced COD of EnVen which will enable the company to capture a significant portion of the prevailing shortage, reducing expensive imports of Urea by the government. We estimate shortage of Urea at 638k tons in CY11 and 124k tons in CY12.

Investment perspective: We believe an expected increase in Urea prices after 1st July by Engro will benefit manufacturers on Mari network the most. The price increase will continue to offset production loss for Engro, as for other manufacturers on Sui network.

May-11 offtake decline on lower availability

During the month of May, Urea offtake fell by 20% YoY to 473k tons, while DAP plunged by 39% YoY to 30k tons. On cumulative basis, Urea and DAP offtake both declined by 11% YoY to 2,187k tons and 245k tons respectively mainly on the back of lower availability due to gas curtailment and resulting plant shutdown for manufacturers on Sui networks. We believe Urea offtake to witness a stable trend going forward, while DAP demand shall pick up significantly in 2H when pre-Rabi season accumulation starts.

FFC and Engro witnessing volumetric jump

FFC and Engro witnessed a jump in Urea sales of 9.5% YoY to 210k tons and 47% YoY to 113k tons respectively, despite higher Urea prices. Simultaneously, Urea dispatches of FFBL and DAWH witnessed a decline of 10% YoY to 44k tons and 43% YoY to 14k tons mainly on the back of lower availability of gas hampering production. Production of FFBL and DAWH declined by 7% YoY to 43k tons and 53% YoY to 14k tons respectively.

Shortage to ease with commencement of EnVen

Engro Corporation Limited recently announced COD of its 1,300k tons Urea plant (EnVen), which will enable to the company to capture a significant portion of the prevailing shortage, thus reducing the country’s reliance on imported Urea. We estimate the company will be able to increase its market share to 38% from the current 19%, once the plant runs on full capacity. We estimate shortage of Urea at 638k tons in CY11 which shall reduce to 124k tons in CY12 due to full year impact on EnVen. However, with no other expansions lined up, shortage will start to magnify from CY13 onwards.

Investment perspective

We believe an expected increase in Urea prices after 1st July by Engro, will benefit manufacturers on Mari network the most. The price increase will continue to offset production loss for Engro, as for other manufacturers on Sui network.

Economic & Political News

100% increase in gas prices proposed

The government has worked out a plan to increase prices of gas from 10 to 100% from the new financial year beginning July in a bid to end cross-subsidy, which was agreed to with multilateral lenders. According to sources, the government is particularly focusing on reducing cross-subsidy which comes in the range of PKR35 to PKR40bn per annum. Under this system, fertiliser manufacturers are supplied gas at reduced rates and the balance is received from the textile and other industrial sectors in the shape of higher gas prices. Sources said the petroleum ministry had prepared a proposal to bring the price of Compressed Natural Gas (CNG) on a par with that of petrol and as a result CNG price would rise by around 50%.

Govt to launch three new savings schemes

The government has decided to launch three new short-term saving schemes in the first quarter of the next financial year to mobilise close to PKR100bn public savings to reduce reliance on bank borrowing and create some space for the private sector to access liquidity in the banking industry.“The plan (to launch new saving instruments) has been ready for quite sometime but withheld for appropriate timing, said Rana Asad Amin, additional secretary ministry of finance.
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