Morning Call about Fertilizer Data – Arif Habib Limited

Karachi: Urea sales drop by 4%, DAP sales soar by 24% in 8MCY11

National Fertilizer Development Corporation (NFDC) has released fertilizer numbers for the month of Aug’11. During 8MCY11 Urea sales have recorded a decline of 4% YoY to 3,717 kT.

According to Arif Habib Limited, this drop is mainly due to 4% YoY lower production, caused by gas supply shortage and delay in imports. However, during the same period, DAP sales mounted by 24% to 524 kT compared to 424 kT observed in the corresponding period last year. On the contrary MoM sales figure depicts an opposite trend, where Urea sales jumped by 15% in Aug’11 whereas DAP sales exhibited a dip of 42% despite phenomenal rise in the product price. This Urea offtake in Aug’11 recorded is 11 month high and 20% higher than average sales witnessed during CY11. This remarkable offtake during the month is attributed to smooth gas supply, provided to companies on SNGPL network. On a company wise basis all major manufacturers recorded a YoY rise in 8MCY11 Urea offtake besides FFBL whose offtake was dented by 13% during the period.

 

Fertilizer offtake (’000 tons) 8MCY11 8MCY10 YoY Jul’11 Aug’11 MoM
Urea  3,717 3,867 -4% 482 556 15%
DAP 524 424 24% 132 77 -42%
Company offtake (’000 tons)            
Urea            
FFC 1,584 1,533 3% 207  203  -2%
FFBL 292 337  -13% 36 36  1%
ENGRO 834 600 39% 114  150 31%
FATIMA 289  89 225% 36  33  -8%
DAP            
FFBL  352 196 80% 97  50 -48%
ENGRO 151  186 -19% 34 20 -42%
Average Price  July’11 Aug’11 MoM      
Urea 1,507 1,691 12%      
DAP 4,078 4,078 24%      
Source: NFDC            

 

Engro stands out as major gainer recording an exceptional 31% MoM rise in its Urea sales. The primary reason for this outstanding performance is record production of 150kT from both of its Urea plants. Arif Habib Limited believes 70 kT (47% of total production) was the alone contributed from the Enven plant.

DAP sales break-up shows that FFBL sold 352 kT (rise of 80% YoY in 8MCY11); on the other hand Engro’s offtake stood at 151 kT tons compared to 186kT, a plunge of 19% YoY. In Aug’11 Engro imported a total of 55 kT DAP.

Fertilizer Prices to stay firm in 2HCY11

Average retail Urea prices during the 8MCY11 stood at PKR 1,315/bag, a rise of 56% YoY. In 2HCY11, Arif Habib Limited believes ex-factory Urea prices are likely to stay firm at the current levels (PKR 1,250/bag), while the retail prices owing to hoarding practices may face further price hikes. On the other hand, DAP prices incurred a price rise of 47% YoY, to the tune of PKR 3,768/bag. Arif Habib Limited expects the Ex-factory price for DAP to rise, given the rising trend in international prices increasing. In CY11 Arif Habib Limited anticipates total DAP sales would be ~1.5 million tons whereas Urea offtake for similar period are likely to be ~6.5mn tons.

Gas curtailment may ease off going forward

Gas supply situation has eased off as plants on SNGPL network are now getting 80% of their guaranteed allocation contrast to earlier when Arif Habib Limited saw continuous plant shutdown of one or more plants. In the near term gas pressure from Qadirpur field may decline by around 60mmcfd thus effecting Urea plant currently on the SNGPL network. Going forward gas situation to become better if OGDCL gets its Kunnar Pasaki field online by October end 2011 as planned.

Stance on the sector

Arif Habib Limited maintains Arif Habib Limited’s positive stance on the sector. Arif Habib Limited’s top pick of the sector is FFC. At current price level of PKR 161.92/share, FFC is trading at attractive discount of 22% to Arif Habib Limited’s Dec’11 DCF based target price of 194.0/share.

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