Urea sales slow down

Fertilizer numbers for August 2015 are out, but a lot has happened since then. Even then, there is a perspective to those numbers as the increase in feedstock gas price was widely anticipated back in August. It indeed comes as a surprise that urea sales failed to live up to expectations. The widely anticipated urea price increase should have resulted in pre-season bulk buying, which did not happen.
Urea off-take for August at 429 thousand tons was at a 5-year low for the month. The cumulative year-to-date urea off-take growth has also come down to a much modest 2 percent year-on-year, after having registered an impressive 12 percent year-on-year off-take growth in the first half of CY15. The prices stayed flattish during August - not enough to lure in more buyers.
It is October and the dynamics have changed quite a bit. Urea prices have gone up considerably, following the revision in feedstock gas price. The previously announced, now partially halted, farmer relief package had some good news for the farmers, though lacking clarity. Not much progress has been reported on that front as the mechanism to reverse the latest price increase is far from clear.
Much hope was linked to the farmer package, which the Election Commission of Pakistan has now found in violation of the code of conduct. The delay in cash subsidy, coupled with ambiguity on urea prices, could further delay urea off-take.
Although, the ECP verdict does not apply on fertilizer related measures, but apart from subsidy on phosphate fertilizer, most of the measures were already accounted for.
From what it appears, urea prices are set to see a revision - whatever the modus operandi may be. For one, the gulf between locally produced and imported urea has further thinned down - to 5-6 percent. Secondly, there is past precedent of government successfully negotiating with fertilizer players. The revision may not be in totality - but expect prices to come down. Feedstock gas remains a pass through cost item, but the manufacturers may have to succumb to the pressure.
On the off-take front, things do not appear rosy, should the prices continue where they are. And with the farmer relief package now stayed till November, there could be a three month lull window in terms of urea buying.