ISLAMABAD: Increasing fertiliser prices as well as the risk of water shortages in the coming months is expected to bring down the demand for fertilisers.

In May, manufacturers further increased urea prices by around Rs100 per bag to pass on the impact of higher costs borne by them under the subsidy regime.

“With the abolishment of cash subsidy in the current budget, the urea prices are expected to further increase by Rs100 per bag from July 2018,” Ahsan Ali, an analyst at Optimus Capital Management, said.

The decrease in demand due to higher prices and water shortages remains a risk factor while the closure of LNG-based plants could constrain supplies.

The analysts have predicted that an unusual rise in demand or buying from dealers might result in a shortage in the industry.

The fertiliser industry was able to export the entire 635,000 tonnes urea quota by February due to higher production by major companies. As a result, the sector earnings surged by 44 per cent during January–March, compared to the same period last year.

Increase in urea and DAP off-take, higher exports and urea retention prices were the main reasons behind better profitability.

The operating margins went up in the first quarter mainly due to a decrease in warehousing and promotional expenses after inventory levels went down.

Published in Dawn, June 1st, 2018