AKD Quotidian about — Sep ’13 Fertilizer Offtake Update

Karachi, October 30, 2013 (PPI-OT): According to official statistics released by the National Fertilizer Development Centre (NFDC), total urea offtake during 9MCY13 has clocked in at 4.2mn tons, a growth of 13%YoY.

According to AKD Securities the growth has been achieved on the back of higher availability following a 15%YoY increase in urea production, where higher gas availability to ENGRO led to a Urea robust 50%YoY increase in the company’s urea production to 1.06mn tons in 9MCY13. Among major players, urea offtake of ENGRO has recorded the highest increase of 80%YoY to 1.07mn tons followed by FATIMA with an increase of 21%YoY to 252k tons.

In Sep’13, total urea offtake increased by 91%YoY to 504k tons but remained sequentially down by 2%MoM. Gas supply constraints to FFBL led to a 62%MoM decline in urea offtake for the company in Sep’13 while sequential off takes for other players remained largely flat. Total DAP offtake in Development Centre (NFDC), total urea offtake during 9MCY13 has clocked in at 4.2mn tons, a growth of 13%YoY.

The growth has been achieved on the back of higher availability following a 15%YoY increase 9MCY13 increased by 20%YoY to 757k tons, reflecting improved farmer economics as well as better supply side dynamics viz a 15%YoY improvement in DAP PMs. DAP offtake for FFBL increased to 442k tons, an increase of 21%YoY while DAP imports also increased by 7%YoY to 339k tons.

In Sep’13, DAP offtake picked up substantially, recording an increase of 100%MoM after two subsequent price cuts by FFBL. As a result, FFBL’s DAP offtake during Sep’13 stood at 95k tons, a growth of 91%MoM. At current levels, FATIMA is AKD Securities tops pick in the sector with a TP of PkR36/share.

Oct’13 CPI inflation Preview
Having registered at 7.4%YoY/0.5%MoM in Sep’13 (1QFY14: 8.1%YoY), AKD Securities expects CPI to increase by 2.15%MoM which will lead Oct’13 CPI to clock in at 9.3%YoY. This is in line with the SPI trend which suggests a steep 3.6%MoM increase.

Sequential increase in CPI is expected on the back of 1) seasonal uptick in food inflation due to Eid-ul-Azha (particular impact on perishable food items), 2) increases in prices of petroleum products, 3) 17% increase in electricity tariff and 4) quarterly impact of rental inflation. Going forward, AKD Securities expects inflationary pressures to continue apace where AKD Securities revised FY14 average CPI estimate is 10.2%.

This is still below the central bank’s expectation of FY14 CPI averaging 11%-12%YoY. However, risks remain if the currency weakens further. In this regard, the upcoming IMF repayment in Nov’13 of US$725mn is expected to burden forex reserves which currently stand at US$9.2bn and potentially increase pressure on the currency, possibly leading to another round of SBP intervention ala Sep’13. In this regard, AKD Securities believes the SBP will adopt a hawkish stance on interest rates where AKD Securities eyes at least a 50bps increase in the Discount Rate in the upcoming Nov’13 MPS in an attempt to alleviate pressure on the currency.

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