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Urea off-take: worse is yet to come

The National Fertilizer Development Centre released the fertiliser statistics for November 2011 and the picture painted is far from satisfactory. Urea off-take for the month has fallen by 30 percent of the 5-year average off-take for November. The skyrocketing prices of urea in the wake of gas curtailment have certainly caught up with the farmers, which is why buying remained dull in a month where it has traditionally been on the higher side. It should be recalled, though, that urea prices have cooled down significantly in December upon temporary restoration of gas supply to fertiliser plants, bringing prices down to Rs.1,600/bag. It is widely expected that farmers would have engaged in heavy urea buying during December as the wheat sowing gets in full swing. Moreover, the market is abuzz with another round of price increase that is expected to hit the farmers come New Year. The price increase is obviously related to natural gas, but not the supply of it, rather the price. The government is expected to impose an infrastructure development cess across the country, amongst which the fertiliser sector is expected to receive the major jolt. Feedstock prices are expected to increase three-fold, should the cess get implemented. The market estimates the impact of the likely imposition of cess to be an additional Rs.350/bag on urea prices. International urea prices have been coming down significantly for the past four months following a slowdown in global commodity prices. The cess imposition would further reduce the prices differential of local urea to the international market, an advantage which the local industry has long clung to. There is still confusion regarding the likely recipients of the infrastructure development cess within the fertiliser industry. Engro and Fatiima enjoy feedstock gas at steep discount for a long period, courtesy their newish plants. There is ambiguity if the cess would be implemented on the new plants or not. If not, then Engro stands on the verge of being the biggest beneficiary of the likely urea price increase, having spent a lot of time being on the receiving end due to the gas curtailment issue. Farmers, though, will feel the brunt, regardless of which fertiliser manufacturer gets relief and which gets most affected. The farmers economy has undoubtedly improved, yet it has not yet shown on their pattern of fertiliser purchases. Should urea prices go up by as much as Rs.350/bag, there will be dire consequences for DAP off-take, which has also slowed down due to hefty prices as of late and also because of the amount that farmers have to put in to apply urea. Urea being the favoured fertiliser, DAP tends to get neglected by the majority of farmers, which may again be the case, come New Year. The only respite in DAP off-take can come in form of a massive slide in international DAP prices, which have started cooling off just recently. Times ahead are tough and challenging for both farmers and manufacturers.


 



 
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