LAHORE
Urea exports stayed crucial in providing relief to inventory concerns of fertilizer industry despite the government’s move of extending deadline by 6 months for urea export, the sector experts believe.
Experts believe that there would be little or no impact on the supply glut given lack of infrastructure and unviable export prices, however, hopes of any favorable move in international urea prices and ease of tensions on Afghanistan border remain crucial for progress to provide help in easing concerns.
Fertilizer industry started facing supply glut from the second quarter of 2016, post-availability of LNG to fertilizer industry leading to recommencement of operations by small players along with a smooth supply of natural gas to other bigger players resulting in 100 per cent utilization of operational capacities.
However, they believe that prevailing LNG prices, translating into primary input cost of Rs 1200 per bag, appears unviable for continuation of operations of small players.
Government has extended its pro-agri measures by increasing the limit of agriculture loan for small farmers for one crop and a maximum two crops in a year. In addition, there is removal of GST on 3-36hp agricultural diesel engines, reduction of custom duty and sales tax on supply of LNG for feed gas.
On the demand front, they believe, all these budgetary measures to facilitate farmers relating to increase in agri loan amount, reduction in markup, subsidy on urea and other fertilizers etc are likely to move the needle slightly upside.
However, the same remains contingent on smooth processing of announced incentives. In terms of supply, the reduction in GST on feed gas and adjustment of subsidies on fertilizer through decrease in GST on output are only likely to reduce refund claims from government thus easing cashflow concerns for the fertilizer manufacturers.
While the recent budgetary measures appear positive for fertilizer demand, the same are likely to have a neutral impact on prevailing supply glut faced by the industry.
The increase in off-take however, failed in subsiding inventory woes where urea was inventory. A short-term relief on inventory front can be witnessed by July this year courtesy seasonal demand pick-up (Kharif season), however, to ensure manageable stock position post jul’17, ‘we’ eye two key factors including prevailing LNG prices appear to be unviable to operate for longer, as per ‘our’ calculations, the analysts added.
