February 8, 2003	Saturday	Zul Hijjah 6,1423

KARACHI, Feb 7: Urea—the most widely used fertilizer in the country— recorded 821,000 tons offtake in December 2002, which represented 23 per cent growth over its sale in the same month in 2001 and marked a new peak in consumption.

“Since it is in the middle of wheat season, demand in December is always at a high point,” said analyst Tasneem Shabbir, who follows the fertiliser sector for brokerage firm, KASB. She said that demand growth of 23 per cent in urea and 36 per cent in DAP year-on-year could indicate that due to imported water conditions, agricultural sector was looking up. “Lower interest rate on farm loans and good Kharif crop, which has improved farm incomes during the year,” were factors attributed to heavier fertilizer demand.

Another analyst Khalid Iqbal Siddiqui at InvestCap added that besides the improved water availability and higher farmers income, slight substitution of urea for imported DAP— whose consumption had depicted decline from 1 million to 0.9 million tons— could yet be another factor for healthier demand in 2002.

He observed that for three years 1999-2001, urea consumption in Pakistan had remained about stagnant at 4 to 4.1 million tons, but it rose to 4.3 million tons, following the record offtake of 0.8 million tons in December; urea offtake in December of 2001 was 674,000 tons.

“The income earned by farmers this time was also higher,” said Khalid adding that it could be gauged from the fact that cotton prices had remained consistently around and above the Rs2,000 per maund level during 2002 cotton buying season, against the recessionary trend following September 11, in 2001.”

Analyst at KASB stated that the immediate concern for fertilizer was that installed capacity was not increasing in step with growth in demand. The trend was said to result in growing demand supply gap especially in urea. “This will have to be met through imports, which is likely to result in not only possible delays but also slowly erode Pakistan’s self-sufficiency in this all important agriculture ingredient,” says Tasneem Shabbir at KASB.

She observed that the local production capacity of urea was being used almost to the hilt. Fauji Fertilizer that controls 65-70 per cent of the urea sales in the country following its acquisition of Pak Saudi Fertilizer in 2002, was operating both plants at full capacity, while the remaining two large fertilizer units: Engro Chemical Pakistan (with 20 per cent market share) and Dawood Hercules Chemical were also approaching full capacity utilization. Analyst observed that the New Fertilizer Policy unveiled in August 2001 had removed much of the subsidy provided to existing urea manufacturers. “Although it aimed to provide some incentives to future plants, lack of any fresh investment in the sector, indicates the overall failure of this policy,” analyst said.

Since it would take at least four years for any new project that may come into the pipeline at this time, analysts cautioned that going forward, it was likely that the country would have to import urea in increasing quantities at least in the short term.