National Fertilizer Development Centre (NFDC) released the fertilizer statistics for February yesterday. The urea off-take remained satisfactory for the dying months of Kharif season. But the alarmingly low inventory levels signal hefty imports in line for the upcoming Rabi season.
February ended with a urea inventory of 170,000 tons, the lowest level in the last 15 months. Although the NFDC in its Rabi season outlook has mentioned only 100,000 tons of urea imports confirmed so far, the current production level of the local manufacturers suggests imports could well go beyond one million tons.
The local urea production of late has average nearly 0.33 million tons per month, as the SNGPL plants continue to be on the receiving end of gas load management. Rabi season urea off-take is estimated to be nearly three million tons, leaving room for more than one million tons of urea imports, which should worry the local manufactures in terms of profitability.
The government has been providing imported urea to farmers at heavily subsidised rates, offering more than Rs1,000 per bag as subsidy on urea. Restricted gas supply and stiff completion from imported urea at subsidized rates have impeded the local manufactures pricing power. With over a million tons of urea imports in pipeline, the local manufactures are bound to face the music in the near-term.
Moreover, with a likely regime change round the corner, there appears highly a chance of natural gas prices being rationalised. PML (N), the frontrunner in the upcoming general elections, has outlined gas tariff rationalisation across the board, which in all likelihood would result in increased feedstock gas price for local manufacturers.
Talks of expediting the LNG imports are also making rounds, which would again result in increased weighted average price of natural gas. The farming community being a major constituency of the two mainstream parties; makes it less likely that the subsidy on urea imports would go away anytime soon. Power sector has been placed on top of the gas supply priority list, indicating that the local urea manufactures would face a similar situation in terms of gas supply.
From what it appears, the upcoming general elections hold the key in terms of major decisions affecting the fertiliser industry.
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