Home Manufacturer fund Urea sales in December 2021 could drop 32% YoY

Urea sales in December 2021 could drop 32% YoY

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Fertilizer manufacturers’ revenue stream and stable margins keep the favored sector in the market. The company’s earnings bode well with the sector’s cash-rich position for sustainable payouts, making their dividend yields attractive at current levels.

DAP manufacturer Fauji Fertilizer Bin Qasim (FFBL) is in an ideal position. DAP prices in the local market have already increased from Rs 700 to Rs 800/bag in December 2021, as a result DAP primary margins are now at a decent level of $345/tonne.

However, urea prices are the same since August 2021 (and are reduced by 80% compared to international prices) when they were last increased by 50 rupees/bag in the local market.

With a better supply and demand situation, the pricing power of urea would be comparatively better for the Fauji Fertilizer Company (FFC) and any price increases will contribute positively to the company’s profits and dividends. business.

Gas price increases are long overdue and with the recent request from the International Monetary Fund (IMF) to increase gas and electricity prices, we believe that a 15-20% increase in the near term is now probable. We are of the view that in the event of a gas price increase, local urea players can easily pass on the negative impact of any increase and can also increase prices beyond the cost push, as we believe that fertilizer manufacturers have enough room to do so.

According to preliminary data, urea sales in December 2021 are expected to reach 598,000 tonnes, down 32% year-on-year. Urea production; however, it is expected to register at 558,000 tonnes for the month, which will bring the closing urea inventory for December 2021 to 58,000 tonnes.

The ending stock of urea at CY21 is expected to close at 58,000 tonnes, the lowest since CY08, when the ending stock touched 34,000 tonnes.

For December 2021, Fauji Fertilizer Company (FFC) is expected to report urea sales volume of 232,000 tons; followed by Engro Fertilizer Limited’s estimated offtake of 190,000 tonnes, while Fauji Fertilizer Bin Qasim’s (FFBL) offtake is forecast at 31,000 tonnes.

The cumulative harvest for CY21 is forecast at 6.3 million tonnes, an increase of 5%.

The DAP harvest for December 2021 is expected to reach 117,000 tonnes, compared to 205,000 tonnes in the same period last year, a decrease of 43%.

The DAP harvest for CY21 is expected to reach 1.9 million tonnes, marking a decrease of 13%. FFBL, the sole manufacturer of the product, should register the withdrawal of 77,000 tonnes during the month of December 2021.

Engro Fertilizer and Fauji Fertilizer Company are expected to post meager DAP sales volume of 5,000 tons and 10,000 tons during the same period, respectively.

Muhammad Waqas Ghani is AVP Research at JS Global Capital. Ghani aspires to become a valuable contributor to the global financial industry and the business world in general. He thinks finance is a fascinating discipline dealing with money, markets and valuation and is relevant to all aspects of business.