Urea price posted a sharp increase of 15 percent to Rs 1,600 per bag during last six weeks. The shortage of the commodity now looms large. The market sources told Business Recorder Monday that the price of urea, an essential raw material for crops, continues to move up in the domestic market as the domestic urea production got affected due to gas curtailment to SNGPL''s base urea producing plants.
Presently, three urea plants operating on the Sui Northern Gas Pipelines Limited (SNGPL) network are shut for last 7 months due to unavailability of natural gas. There is no natural gas for the urea plants on the SNGPL network, resulting in short production - some 85,000 tons urea every month or cumulatively over 0.7 million tons in the last few months.
The price is the best market indication to determine the urea availability in the market. As the urea shortage is looming, its price is gradually increasing in the local market, industry experts said. They said that shortage of urea already exists, due to which urea price has posted an increase of 15 percent or over Rs 200 in last six weeks due to higher demand and lower supply. Urea retail price has jumped to Rs 1,600 per 50 kgs bag in the domestic market compared to Rs 1,390-1,400 per bag one and half months ago, they added.
Out of overall increase, domestic producers raised Minimum Retail Price (MRP) by Rs 100 to Rs 1,400 per bag due to nonpayment of subsidy, while the remaining Rs 100 per bag hiked by market movers due to massive demand or expected shortage.
Industry sources said domestic urea prices are likely to remain higher during the current fiscal year, if gas supply is not restored to SNGPL-based three urea plants.
Urea plants operating on the SNGPL network are even unable to start production on imported LNG as it is much expensive compared to domestically available natural gas. The continued closure of these three urea plants could lead to shortage of this essential commodity as well as price escalation during the Kharif season. As the production of SNGPL-based producers has currently shut, the remaining plants'' production will be up to 460,000 tons per month.
Kharif season started in April and there is a huge demand of the commodity by farmers for crops. Therefore, severe shortage of urea is expected to start by the end of July and this will cast a major negative impact on agriculture sector, which is the backbone of Pakistan''s economy.
As per the estimates, May urea offtake will be minimum 0.5 million tons and some over 300,000 tons of cash orders have already been booked with urea producers.
They said that ending stocks for any month must be at least 200,000 tons to prevent the shortage of urea in the domestic market. However, stocks are expected to go down to around 120,000 tons by the end of July and zero by the end of August, if gas supply to SNGPL-based plants could not be restored or import of urea not initiated.
Sources said urea export was allowed in a very ideal situation, when the local production was on sufficient level with massive carryover stocks. The previous government has claimed urea export a big achievement and some 184,000 tons of urea was exported since October 2017. However, now, the country would be compelled to import the commodity, if gas to SNGPL plants is not restored.
Overall, the urea production capacity in the country stood at 6.5 million tons annually, however with the closure of three plants on SNGPL network, overall production has declined to 5.5 million tons annually against the demand/consumption of 5.5 to 6 million tons annually.