Urea demand fights high price

The National Fertilizer Development Centre (NFDC) has revealed fertiliser statistics for August 2011 and it was not much of a surprise. The urea off-take for August 2011 nearly doubled on year-on-year basis, but this was an expected revival. The devastating floods last year casted a disaster spell on urea demand which tapered the input demand. Looking at the broader picture, the year-to-date urea demand has not been increasingly encouraging; in fact it has dwindled, albeit slightly, by 4 percent on year-on-year. It seems that the incredible hike in urea prices is having a telling blow on fertiliser demand and could get worse in the months to come as Sindh has been recently hit by severe floods destroying sizeable quantities of crops. The urea prices, which were at Rs921/bag, when 2011 started; have now skyrocketed to Rs1,700/bag which is certain to have an impact on the demand of the all-important input ingredient for agricultural produce. International urea prices are currently hovering around $450/ton, which still provide a 30~35 percent cushion to the local manufacturers; hence another round of price increases cannot be ruled out should gas curtailment continue. The numbers are yet to show the impact of floods which took their full toll on crops in September, but it will be the initial months of the Rabi season starting from October where the aftershocks of the floods will likely be felt the most. "Input prices have increased massively, of late and the trend suggests it would soon hit the level of Rs2,000/bag...it would hamper not only the urea demand, but also disturb the phosphate intake as the farmers economy would take a hit after the floods", said Muhamad Nisar, an agriculturist hailing from Sindh. On the other hand, DAP off-take has shown resilience, as it has registered a 23 percent year-on-year increase during the year-to-date period. But the surge is still far from enough to improve the worsening NP ratio which now stands at 7:1 (Jan-Aug) against an ideal ratio of 2.5:1. The global DAP scenario presents a tight supply situation which is likely to move prices northwards. The international DAP prices have already touched $700/ton and trends in Phosacid contract settlement suggest another round of increases is in the offing. In the absence of subsidy on DAP, there are strong chances that come Rabi season, DAP demand would recede as the prices are expected to stay on the higher side for the remainder of 2011. A probable slowdown in urea off-take is not likely to harm any of the local manufacturers as the supply dynamics provide them enough cushion, but it may well have an adverse impact on crop yields. A lot will depend on how quickly the farmers recover from the floods losses. That said, sales can sharply pick up should the proposal of an increase in the wheat support price is approved and implemented by the start of the Rabi season.