Near six-year low urea prices finally seem to have started doing the trick. Urea off-take for the Rabi season concluded in March 2017 stood at 2.89 million tons – up 19 percent from last year. The numbers should bode well for the Rabi season agriculture output. Although, the off-take has been on the lower side in 2017, it is the heavy buying in the dying months of CY16 that has done wonders for Rabi off-take.

On a monthly basis, the urea off-take in March was barely 0.2 million tons, still significantly higher from the abysmal off-take of 0.11 million tons recorded in the same period last year. The urea prices have come done appreciably ever since the subsidy was introduced last year to help the deteriorating farm economy and put more life into the dwindling urea application.

Recall that urea off-take for the past five years has seen continuous slide year after year. It has been six years and counting that yearly urea off-take in Pakistan crossed 6 million tons. It has since come down by half a million tons. While, it is early days to predict if it will be a better year this time around, but signs so far have been encouraging. A lot will depend on the continuity of urea subsidy come the next heavy off-take season.

Market fears some drop in buying as the budget nears, in anticipation of subsidy continuation. Given the government is in election mode, it is highly plausible that subsidy on both urea and DAP will continue for the next fiscal year as well. There are reports that the Kharif season sowing may get delayed in some key areas, which could have a toll on urea buying as the season begins

So far the signs are encouraging in terms of agri output, and urea should see demand pick up once Kharif crops get in full swing. The best part in the whole scenario is that the price uncertainty that persisted for much of last year seems to have vanished, at least for now. There should be less anticipatory buying this year than there was last year.

A 27 percent year-on-year decline for February tells how much more accessible has the commodity become. That the off-take fails to grow by as much tells the very nature of fertilizer demand and farm economics. In all likelihood, the government would want to extend the cash subsidy on urea for another year, with the general elections round the corner.

International urea prices have gone up way beyond $230 per ton – and that should offer a cushion to the local manufacturers. Recall that international prices had slid down to as low as $200 per ton, compelling local players to sell at discount faced with pressure.

That said the inventories still sit at over 1.5 million tons which could be a cause of concern, as demand has struggled to keep pace. Local manufacturers may still have to release some of the inventory at discounted prices in the coming months, although the pricing power may not be tested as much as it was in the yesteryears.