Fertilizer sales looking up

Pakistan recorded highest ever January urea off-take and second highest ever January DAP off-take at the start of 2015. This surge came after a lacklustre 2014, in terms of nitrogenous fertilizer off-take. Recall that urea off-take had been declining steadily over the years despite flattish prices in the last 12 months. Although the year-on-year increase in January urea off-take is paltry, channel check suggests an improving farmers economy promises a bright year for fertilizer intake.
What is heartening to note is a revival of sorts in urea production, which stood at 420 thousand tons in January, almost a 12 month high. The gas supply situation has improved appreciably in the past few months for the fertilizer industry, as Engro got another lease of life through extension in supply diverted from Guddu power plant.
Should the gas supply situation remain as it is, it could be good news for the local players, who have had the worst of nightmares in the past three years. Luckily, urea prices have stayed range bound, even after the GIDC imposition as the pricing power was checked, tested and challenged by the government.
The inventories sit at thin levels but timely urea imports are expected to arrive. There is no downward pressure on urea prices in the immediate run, as international market has stayed flattish too. The gulf between imported and local urea has gradually narrowed, which could be a cause of concern in an unlikely event of increase in input cost.
What is surprising and what also probably excited the farmers was inaction as regards natural gas pricing by the government. Feedstock gas prices were expected to be revised in January, but they were not, which may improve the fertilizer demand going forward. The increased wheat support price and bumper crops signal a much improved farmers economy - and 2014 numbers also show the impact in terms of phosphate fertilizer application.
The NP ratio (a measure to nitrogen to phosphate fertilizer application) improved to 3.4 in 2014 as DAP application gathered pace. Although the best in 15 years, the ratio is still far from ideal, but much improved from the previous 5-year average NP ratio of 4.8. Save for any natural calamity, fertilizer application should pick pace and 2015 could see improvements in crop yields after decades of deterioration in crop yields.