Fertilizer makers may not meet demand: Exports to Kabul
By Our Staff Reporter
KARACHI, April 8: The fertilizer sector during the past few months has undergone many changes, which include: higher urea prices due to culmination of a 10-year subsidy on feedstock gas for expansion plants
of major fertilizer producers;
higher local DAP prices following international markets; proposals for modification in the Fertilizer Policy 2001 to attract new investment in this sector; and demand for fertilizer from Afghanistan.
In his report on the fertilizer sector, Shahab Farooq, analyst at First Capital Securities, stated that according to his calculations, Pakistan was not in a position to export the required quantity of fertilizer to Afghanistan as the domestic demand supply situation was neck-to-neck.
According to the Fertilizer Policy 2001, feedstock gas rates were expected to increase by 10 per cent from July 1, 2004. The 10-year subsidy for feedstock gas rates had expired in 2003 for the expansion plants of Fauji Fertilizer and Engro Chemical.
As a result rates had increased by 7.5 per cent on July 1, 2003. Urea prices remained stable during 2003. However, from December 2003, they had started to surge ahead and from Rs422 per bag in December, prices had climbed to Rs430 per bag in February 2003.
"It is expected that the manufacturers are likely to further increase urea prices to absorb the impact," the analyst pointed out. During March 2003, urea manufacturers had raised urea prices by Rs5 per bag, which had been effective from April 1, 2004 (beginning of Rabi season).
Market expects another rise in prices of urea by June 2004 in order to fully absorb the increase in costs. The fertilizer off take numbers for March are likely to show an increase before price increase comes into effect.
Taking note of ineffectiveness of the Fertilizer Policy 2001 in attracting the investment in the fertilizer sector, the government had asked for proposals for modifications in the current fertilizer policy to be approved in the budget for 2004-05.
As for the proposals for modification, most of the stakeholders compared incentives for new investment in the fertilizer sector of Pakistan with those offered in the Middle Eastern countries and emphasised on the following: Composite fuel and feed gas prices be fixed at Middle Eastern levels for 15 years; priority for gas allocation and uninterrupted gas supply be ensured; gas prices be fixed in Pakistani rupee terms instead of US dollar terms; extension in deadline for signing of GSAs for availing the benefits of fixed gas rates from 2005; tax-holiday of 10 years for new investors and removal of import duties on fertilizer machinery and equipments; and finally the abolition of GST on agricultural inputs.
Market reports suggests that Afghanistan has informed Pakistan that it would require around 280KT of urea and 185KT of DAP for its internal consumption during the current year.
Pakistan's fertilizer sector does not have enough strength to meet the domestic demand for fertilizer and also to be able to export the surplus. The domestic demand supply is currently neck-to-neck. In the year 2003, local fertilizer off take was 4.5 million tons, which was just close to the installed capacity in the country.
