Fertilizer roundup

The National Fertilizer Development Centre (NFDC) released the monthly fertilizer statistics for February 2016, which showed the monthly urea off-take went down by 30 percent year-on-year. But that was not the big news, as a slowdown in urea off-take was very much on cards after heavy buying in the dying months of 2015.
Recall that the urea of-take for January 2015 had also clocked in at a twenty year low. The confusion stemming from ambiguity on farmers package and pricing had caused delay in urea off-take in 2015, and it was only made up in the last two months of 2015. The market had anticipated that the coming months would be slow for urea off-take, as hoarders stocked urea pile in anticipation of better prices going forward.
What has happened, however, in stark contrast to what the speculative buyers were ideally hoping for? The local urea prices have gone further down to Rs1874/bag - a level last seen almost two years ago. Such a sharp decline in urea prices would have ideally resulted in heavy buying - but the depressed farmers economy coupled with sizeable inventory pile mean a surge in off-take can wait.
For the local manufacturers, the international urea prices sound an alarm. As per the statistics, imported urea price for February nose-dived to as low as $190/ton in some cases - and the maximum landed price of imported urea was recorded at Rs1760 per bag. This is six percent lower than locally manufactured urea, signalling a fresh round of price decrease, should imported urea hover around this mark.
Ruhail Muhammed, CEO Engro Fertilizers, had said in interview published last month in Business Recorder that international prices will remain a key determinant to the profitability of local players in 2016. "At $240 per ton international price, it would be almost at par with our selling price - which we are already offering at a discount. So yes, if the prices go further down, there will be pressure on margins", is precisely what Ruhail said, fearing a likely dip in margins.
The gas cost for Pakistani fertilizer manufactures has risen substantially of late, and is the highest among fertilizer producing countries. The chief reason why the local industry still does reasonably well, that it operates in a fertilizer consuming country. But the recent drop in international urea prices, will surely lead to reduced prices at home - before the government decided to flood the market with cheap imported urea.