Record urea off-take

Someone somewhere must take credit, as Pakistan’s urea off-take in FY17 crossed 6 million tons only for the second time in history. A record 1.06 million tons of urea was sold alone in June 2017, which is also only the second time that June off-take has surpassed the million ton mark.

The FY17 urea off-take is a staggering 39 percent higher year-on-year. Granted that FY16 was an exceptionally bad year in terms of off-take, but even in terms of 5-year CAGR, urea off-take has grown by a healthy 18 percent. The only time when the yearly off-take on fiscal year basis surpassed 6 million tons earlier was in 2010 – and that was also only the second last time the CY off-take too crossed 6 million tons.

Even on CY basis, the strong 2QCY17 performance has more than made up for a sluggish 1QCY17 off-take. Such has been the rebound that urea off-take in 2QCY17 is equal to that of 1HCY16. The federal budget and the anxiety related to it had earlier slowed down the sales, but as soon as the budget came, sales jacked up considerably.

The continuation of subsidy surely played its role, as did the clearance of stock at discounted rates. The inventory levels have also come down considerably to around 1 million tons. Whether the momentum could be maintained for the coming months of the season is anyone’s guess, but the price trend suggests that farmers would not mind buying at these rates.

Urea prices are at five-year low and have shown no signs of inching up anytime soon, if the international price is any guide.Government‘s current subsidy mechanism has not made the price reduction a complete pass-on event for the manufacturers. In all likelihood, such pressure from international prices and imported stock with NFML would keep the local manufacturers on toes – and a dip in margins should be expected for much of this year.