Urea barter trade - tough on local players

The Iran-Pakistan gas pipeline may or may not happen but the two countries may well see the barter trade of wheat and urea pretty soon. The authorities have reportedly agreed for exports of one million tons of wheat from Pakistan to the sanction-hit neighbour, in return of urea imports equalling the amount.
The wheat exports will definitely be good news for wheat growers as the country will not have to bear the additional carrying cost of surplus wheat. News reports suggest the rates offered by Iran will be competitive and fetch around $285 million for one million ton, as per the prevailing market price of $285/ton.
The growers won be complaining much either over availability of cheap urea in abundance in the upcoming season. Bear in mind that the fertiliser off-take of late has remained depressed, primarily due to high prices. Local manufacturers are worst afflicted by the availability of cheap imported urea, as their sales have slid dramatically by nearly 50 percent during the first quarter CY12.
Pakistan has already imported nearly 0.7 million tons urea during the first quarter CY12. Another 0.3 million tons of urea imports are in the pipeline. Should the barter with Iran take place, Pakistan will be importing an additional 0.7 million tons to equate the dollar amount in terms of wheat exports.
Not to mention, Pakistan is already sitting high on urea inventory - 0.8 million tons by the end of March 2012 and expected to have crossed the million-ton mark by April end. Such high inventory levels were last witnessed back in 2007. Without a doubt, the abundance of imported urea would put pressure on local manufacturers who are already facing the heat in terms of feedstock gas curtailment.
The frequent gas supply disruptions have also nearly eliminated the room that the local urea producers used to have in the past, to pass on the impact with a price hike. Now in order to compete with imported urea, the local producers may have to instead slash urea prices to stay afloat, as the price differential between imported and local urea has quickly vanished.
Such high level of urea imports suggests that the government is not overly keen on restoring complete feedstock gas supply to the local producers, which can provide them the room to compete with cheap imported urea. It seems, times will be tough for the urea players, at least, in the near term.