Urea offtake down 35pc, DAP sales up 6pc YoY in December

On a cumulative basis, urea offtake decreased 3pc YoY to 6.04m tonnes in 2020

LAHORE: Urea offtake in December 2020 clocked in at 881,000 tonnes, up 65pc month-on-month (MoM) when compared with Nov 2020, but down 35pc year-on-year (YoY) as compared to Dec 2019, according to data released by the National Fertilizer Development Centre.

The monthly increase was due to better farm economics coupled with anticipated urea price increases going forward. On a cumulative basis, however, total urea offtake in the year 2020 decreased 3pc YoY to 6.04 million tonnes.

During the month of December 2020, the offtake of Fauji Fertilizer Company Ltd (FFC), Fauji Fertilizer Bin Qasim Ltd (FFBL) and Engro Fertilizers Ltd (EFERT) decreased 37pc, 52pc, 51pc YoY, mainly due to a high base-effect from December 2019 (pre-buying last year ahead of anticipated price hikes). Combined market share of these producers rose 5ppt YoY to 85pc in CY20 from 80pc in CY19.

In December 2020, urea prices remained flat at Rs1,650 per bag MoM, but declined significantly by Rs350 per bag YoY from Rs2,000 per bag in December 2019. This was due to almost complete removal of GIDC on both feed and fuel gas, which forced fertilizer producers to reduce urea prices.

However, in January 2021, producers have increased the prices by Rs50 per bag to pass on inflationary pressures.

Industry urea inventory stood at 299,000 tonnes at the end of December 2020, compared to 668,000 tonnes at the beginning of the month. Higher urea offtake was attributed to the inventory drawdown of 55pc MoM.

“Inventory levels in CY21 is likely to hover around the same level amid flat offtake YoY and discontinuation of gas to RLNG-based plants since December 2020,” a report issued by IMR Research read.

Meanwhile, the offtake of diammonium phosphate (DAP) was recorded at around 205,000 tonnes in December 2020, down 44pc MoM but up 6pc YoY. This took the total DAP offtake in CY20 to 2.17 million tonnes, up 12pc YoY, largely because of lower DAP prices in the initial months of 2020, and better crop prices later in the year.

DAP inventory stood at 112,000 tonnes by end-December, down 77pc YoY. Since August 2020, DAP prices have increased by almost Rs950 per bag to Rs4,400 per bag. This included the Rs500 per bag increase in January 2021. FFBL was a key beneficiary of this increase.

During CY20, urea demand clocked in at 6.0 million tonnes as compared to 6.2 million tonnes in CY19. However, DAP offtake increased because of low base-effect and better purchasing power of farmers owing to higher commodity prices.

“We maintain our Marketweight stance on the sector, where the recent increase in urea and DAP prices will elevate the sector’s profitability; while the likely increase in duration of GIDC payment from 24 to 48 monthly instalments (including one year grace period) will provide much relief to the cash-flows and profitability of the overall sector,” the IMS report added.

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