After a record June, urea sales in July 2020 also ended on an encouraging note, highest since CY16. Recall that anticipation of a massive agriculture incentive program back in April and May had dampened the urea off-take to multi-year lows, only to come back strongly as more clarity arrived on the subsidy front. The urea market in Pakistan, is eventually a balanced market, and the off-take is usually 5.8 to 6 million tons per annum, since CY12.
Urea sales in July at 575 thousand tons are 24 percent higher year-on-year. But a rather dismal three months from March to May, means the year-to-date urea sales at 3.2 million tons, are still 3 percent shy year-on-year. This is a massive improvement from two months ago, when the cumulative calendar year urea-offtake was down by a third. All of this indicates urea, in all likelihood, is all set to report another year of normal off-take, in the range of 5.8 to 5.9 million tons, extremities aside.
The industry had earlier raised concerns on crop acreage and the resultant fertilizer application, in the wake of a bigger locust swarm attack entering Pakistan by September or October. There were estimates of 20-25 percent crop damage in case of a locust attack of the size being feared. But the latest Locust watch by the United Nations Food and Agriculture Organization, offers a glimmer of hope as “the risk of swarm migration to the Indo-Pakistan summer breeding area has nearly subsided”.
The phosphate fertilizer application at 0.84 million tons in 7MCY20 is unchanged year-on-year. The combined nitrogen and DAP fertilizer spending in 7MCY20 at Rs168 billion is 8 percent lower than last year. The urea spending has reduced by 11 percent year-on-year, as prices have softened in 2020, after the GIDC decision earlier, which led to the industry passing on some of the benefit to the farmers.
The government is expected to roll out an agriculture support plan, which is likely to hover around the use of phosphate fertilizer. One can expect better yields, balanced fertilization and higher use of DAP fertilizer in the next crop season, should the subsidy be channeled the right way.
While the threat of a mega locust attack may well have subsided, the threat of higher urea prices cannot entirely be ruled out, especially in the aftermath of the GIDC decision which requires urea manufacturers to pay billions- some of which is not accounted for. Interesting times are ahead in terms of fertilizer pricing subsidy and off-take.
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