AKD Quotidian about — Jan’13 Fertilizer Off take Update

Karachi, February 27, 2013 (PPI-OT): Urea sales for Jan’13 clocked in at 517k tons, down by 15%YoY. Importantly, the 15%YoY fall in sales was due to significant decline in imported urea sales.

According to AKD Securities on a company wise basis, ENGRO was the notable gainer, with urea sales surging by 148%YoY to 122k tons. For FFBL, DAP offtake rose by I 06%YoY in Jan’13 to 32k tons.

Despite the gas curtailment, FFBL was able to manufacture 58.4k tons of DAP as the company is seeking to capitalize on cheaper phosacid prices. Global fertilizer markets are painting an interesting picture whereby Urea (Yuzny) prices have rallied strongly in Cvi 3TD, rising by 14% to US$422/ton while DAP Tampa prices are down by 4%CY13TD to US$478/ton. With gas supply resolution in sight, AKD Securities highlights ENGRO as AKD Security’s convictions pick in the fertilizer sector and recommend BUY with a TP of PkR2O7!share.

Jan’13 urea sales down 15%YoY: Urea sales for Jan’13 clocked in at 517k tons, down by 1 5%YoY. Importantly, the 15%YoY fall in sales was due to significant decline in imported urea sales as NFML sold 158k tons of urea in Jan’13, down by 51 %YoY. Sequential fall in urea sales (-46%MoM) was due to heavy pre-buying in Dec’12.

On a normalized basis, Jan’13 urea sales were largely in-line with the last five year average for urea sales of 546k tons. On a company wise basis, ENGRO was the notable gainer, with urea sales surging by 148%YoY to 122k tons, with the sales rise supported by higher production (+69%YoY/1 7%MoM to 101k tons), following the successful gas supply switch of ENVEN from Sui to Marl.

DAP sales start year on a positive note: DAP olltake rose by 106%YoY in Jan’13 to 32k tons. Despite the gas curtailirient, FFBL was able to manufacture 584k tons of DAP as the company is seeking to capitalize on cheaper phosacid prices (1QCY13 contract price down by US$85/ton to US$770/ton) regardless of the low DAP demand season.

Taking cue from international markets: Global fertilizer markets are painting an interesting picture. Urea (Yuzny) prices have rallied strongly in CY13TD, rising by 14% to US$422/ton, with the rise helped by strong farmer economics and sharp reduction in Chinese Jan’13 urea exports.

On the other hand, DAP outlook continues to be clouded by the uncertainty over Indian demand (world’s largest phosphate importer) following significant cut in import subsidies for DAP last year. In this regard, India is scheduled to announce its budget tomorrow where recent news reports suggest a further 20% reduction in iirport subsidies for phosphate fertilizers.

In this regard, DAP Tampa prices are down by 4%CY13TD to US$478/ton. Int’l urea price are likely to reiriain strong n CY13, which bodes well for domestic manufacturers pricing power. On the other hand, PTC (23.36): Supported by a bullish peak and trough progression intact above 21.44, AKD Securities continue to scope for 25.67. Nearby supports reside around 23.26 and 22.84. Buy at weakness. believe that the weak trend in DAP prices is not a major concern for FFBL, primarily due to healthy margins being enjoyed by FFBL (current DAP-Phosacid margins of US$260/ton vs. AKD Security’s full year estimate of US$2251ton), allowing it plenty of room to cut DAP prices in order to stimulate derriand. In this regard, DAP prices were reduced by PkR100/bag on Feb 113 to -PkR3,700/bag.

Outlook: With gas supply resolution in sight, AKD Securities highlights ENGRO as AKD Security’s convictions pick in the fertilizer sector and recommend BUY with a TP of PkR2O7/share. The reduction in urea prices post gas resumption to ENGRO is the key risk for other urea leveraged plays (FFC and FATIMA), although AKD Securities highlights reduction in urea prices as a low probability event. AKD Securities has an `Accumulate stance on FFC and FFBL with a TP of PkR14O/share and PkR44/share, respectively.

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