Farmers shrugged off the growing fears of a 2008-like year in October as they engaged in heavy buying of DAP fertilizer which reached 0.37 million tons during the month. The monthly offtake was more than what they had bought during the entire first half of CY10 or the third quarter.
The cumulative year-to-date offtake, however, remained 15 percent lower year-on-year as the high prices and the floods led to a temporary slowdown in DAP offtake earlier this year. But hold on, the DAP buying frenzy is not likely to continue in the remaining months of peak Rabi buying season, November and December.
That is because panic buying in anticipation of further increases in DAP prices triggered such high DAP offtake during October. The DAP prices are already on a 22-month high of Rs2713/bag and the speculation of further increase in prices owing to rapid increase in global phos acid contract prices has propelled farmers to book their positions earlier.
This said, the farmers community seems to have got out of the troubled waters of the floods without much damage to the buying power. Industry sources claim that the farmers economy is very strong despite the floods, especially with the cotton and rice prices they booked on the surplus produce. .
But with a slowdown in DAP offtake expected for the rest of the season, the overall DAP sales might still be 18~20 percent on the lower side, something which does not bode well for the ailing NP ratio which stands at 4.3:1 against the ideal ratio of 2:1. Thankfully, it should not be much of a problem for the upcoming crop season, as agriculture experts believe that the cultivable land has multiplied its fertility after the floods.
Urea demand, on the other hand, has remained on the stable side with just a 4 percent year-on-year decline in the year-to-date sales. The prices, thought to have increased by 5 percent during the year, won be a major threat to the demand as both the farmers strong economy and the hike in DAP prices would lead urea sales to normalcy.
While urea production may suffer for a month or two during the winters due to the gas curtailment and annual plan turnarounds, the product availability will still be comfortable looking at the inventory levels. The National Fertilizer Development Centre (NFDC), though, has somehow failed to incorporate the additional urea production for the Rabi season, which is expected to come from Engros new plant.
The new urea plant has been late but is due to commence production in December as per the companys officials. Absolutely no mention of additional production from such a huge plant shows either NFDCs negligence or possession of vital information that is not public.
Some circles believe that Engro might delay commissioning for a few more months, as the demand at present is well matched by the existing supply. Others fear that issues in the Qadirpur gas field are holding Engro back - a claim, which was brushed aside by the company CFO who said that Engro is receiving the required gas from the field and will continue to do so, with the general curtailment that applies to the overall industry.
So, wait and watch is probably the best policy in this case as December is here.
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