ISLAMABAD: Pakistan’s agricultural sector is facing significant challenges, as urea offtakes have sharply declined by approximately 35% year-over-year, totaling around 365,000 metric tons (MT) for the month of September. This downturn is attributed to several factors, including a looming wheat crisis in the upcoming Rabi season, a staggering 50% drop in cotton crop yields, and delays in crop cultivation due to extended monsoon rains.
According to IMS Research, the third quarter of 2024 saw overall urea offtakes decrease by 17% compared to the same period last year, amounting to 1.5 million MT. Notably, market shares for key producers have shifted, with Fauji Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim Limited (FFBL) gaining market shares of 38% and 9%, respectively, while Engro Fertilizers Limited (EFERT) saw its share fall to 30%, down 8 percentage points.
Urea inventory levels have surged to an alarming 622,000 MT, a staggering 4.8 times higher than in September 2023 and the highest since November 2020. This inventory represents about 10% of annual sales, raising concerns over potential overproduction and low offtakes. EFERT accounts for 34% of the industry’s closing inventory, while FFC and FFBL contribute 10% and 4%, respectively.
In response to the oversupply, urea ex-factory prices have decreased by approximately 2% month-on-month, averaging PKR 4,644 per bag for Sona and PKR 4,497 for other varieties. This price drop is largely a reaction to the elevated inventory levels.
In contrast, diammonium phosphate (DAP) offtakes saw a positive trend, rising by 27% year-over-year to approximately 133,800 MT in September. This increase is attributed to preemptive stocking as farmers prepare for the upcoming wheat cultivation season, which is expected to commence by the end of October. DAP inventory has skyrocketed to about 383,000 MT, a 12.3-fold increase year-over-year, but prices have remained stable at an average of PKR 11,820 per bag due to sustained demand.
Looking ahead, the outlook for fertilizer offtakes remains cautious for the fourth quarter of 2024. Analysts predict continued strain on farmer economics, anticipated lower wheat crop cultivation in Rabi 2025, and potential changes to the government’s Support Price Regime for major crops may further impact demand. However, with wheat sowing expected to begin later this month, a slight improvement in October offtakes is anticipated.
As the agricultural community grapples with these challenges, the implications for food security and economic stability in Pakistan are significant. The government and industry stakeholders must closely monitor these trends to support farmers and ensure a resilient agricultural sector moving forward.
