Fertilizers Sector in Pakistan - · PDF fileFertilizers Sector | Capacities Urea Urea Market...
17
Fertilizers Sector in Pakistan - Cultivating Economy October 2015
Transcript of Fertilizers Sector in Pakistan - · PDF fileFertilizers Sector | Capacities Urea Urea Market...
Fertilizers Sector in Pakistan
- Cultivating Economy
October 2015
Significance of Fertilizers
Fertilizers is the most significant and expensive agricultural input
Agriculture (Agri)
accounted for 21% of
GDP in FY15
Agri is important for Food Security
and reducing poverty | political
interests
Crop yield (30% - 50%) is dependent upon balanced use of fertilizers; One kg of fertilizers
nutrients produces
8 kgs of cereals (Wheat, Maize and rice)
2.5 kgs of cotton
114 kgs of stripped sugarcane
Increased Agri production
and higher crop yield is
essential for food security
Nutrient deficiency in soil of Pakistan is met through fertilizers
Nitrogen Deficiency: 100% of soil
Phosphorus Deficiency: 80% - 90% of soil
Potassium Deficiency: 30% of soil
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
1
Fertilizers Sector | Competitive AnalysisS
uppli
ers Gas Distribution Companies
SNGPL
Mari Petroleum
SSGC
Natural Gas Government regulated prices
and supplies | Controlled
Sector Allocation
Substitutes(Not
feasible)
Coal
High Bargain
Power
Man
ufa
cture
r
Nine companies
demonstrated capacity of
9.4mln Tons per annum
93% of Industry’s Capacity owned by
three strong groups
• Fauji’s 41%, Fatima 28%, Engro 24%
• Retains ability to pass on cost hikes,
however, constraint with few
limitations
Industry
Structure
Oligopoly
Cust
om
ers
Dealers
~ 10,000
Farmers
Companies select dealers and train
them | Dealers buy on cash in advance
Farmers buy from dealers against
credit | SBP’s Agricultural Credit
9MFY15 PKR 326bln (65% of annual
target of PKR 500bln)
Low Bargain
Power
Substitutes
No
Co
ntr
oll
ed
by G
oP
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
2
2
3
Fertilizers Sector | Capacities
Urea
Urea
Market
share
CAN DAP NPOthers
(SSP)
Fauji (FFC) 2,500 36% - - - - 2,500
FFBL 700 10% - 670 - - 1,370
Sub-Total 3,200 46% - 670 - - 3,870
Engro Engro Fertilizer 2,275 33% - - 2,275
Fatima 500 7% 420 - 360 - 1,280
Pakarab 92 1% 450 - 350 - 892
DH Fertilizers 446 6% - - - - 446
Sub-Total 1,038 15% 870 - 710 - 2,618
Agritech 433 6% - - - 81 514
Others - - - - 162 162
6,946 100% 870 670 710 243 9,440 Grand Total
Fertilizer Industry Demonstrated Capacities (thousand MT p.a.)
Fauji's
Fatima
Nitrogenous Fertilizers Phosphatic | Complex Fertilizers
Grand
Total
Company's
Name
Group's
Name
1 & 2 - RYK | 3-Ghotki Sona
Port Qasim Karachi Sona
Base Plant & Enven - Dharki Engro
Rahim Yar Khan SarSabz
Multan SarSabz
Sheikhupura Bubber Sher
Urea-Mianwali | SSP-Hazara Tara
Jaranwala Punjab None
Plant LocationBrand
Name
Urea
67%
CAN
6%
DAP
20%
NP
5%Others
2%
5,631 480 1,655 470 193 8,430 Demand CY14
Fertilizer Mix byDemand
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
2
Fertilizers Sector | Capacities
Dec-10
6.9mln MT
Jun-11
• Engro
• 1.3mln MT
Jul-11
• Fatima 1.3mln
MT
Sep15
Capacity
• 9.4mln MT
Capacity Expansion in latest 5 years – Majorly Nitrogenous Fertilizer
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
Despite Capacity Expansion, enabling excess supply over demand, the Industry continued to
import urea due to shortage of vital raw material – Natural Gas.
2
Raw Material | Gas Supply SituationScarce resource in Pakistan
(Quantity in mmcfd) FY12 FY13 FY14
Allocated Gas to Fertilizer Manufacturers 822 822 822
Gas Supplied – Actual 595 521 597
Less Temporary Gas (Guddu Power Plant) (60)
595 521 537
Shortfall (adj by Guddu)227 301 225 (285)
%age shortfall 28% 37% 27%(35%)
Sector (Priority) Allocation %
Domestic (1) 20%
Power (2) 30%
Fertilizer (3) 18%
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
Gas Network Urea
Capacity (000'Tons)
Capacity utilization
CY13 CY14 9MCY15
Mari Petroleum* 4,300 94% 95% 101%
Sui Northern Gas (SNGPL) 1,946 28% 32% 31%
Sui Southern Gas (SSGC) 700 32% 30% 38%
Total 6,946 70% 71% 75%
*Engro's new plant Enven swapped to Mari from SNGPL since Jul13
2
4
5a
UREA Performance
Country’s largest selling Nitrogenous Fertilizer
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea |Performance
DAP | Performance
Risk Profile
Outlook
Urea Industry Supply deficit continued to be met through imports
5.1 4.2
4.8 4.9 3.6 3.9
1.0
1.4 1.0 0.8
0.4 0.6
6.3
5.2
5.9 5.7
4.1 3.9
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
CY11 CY12 CY13 CY14 9M14 9M15
Mil
lio
n T
on
s
Mil
lio
n T
on
s
Urea Demand Supply Dynamics
Production Imports Stocks Ajd. Consumption
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea |Performance
DAP | Performance
Risk Profile
Outlook
5b
Urea | Pricing Trend
-
100
200
300
400
500
600
700
800
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Gas
Pri
ce (
PK
R/m
mb
tu)
Ure
a P
rice (
PK
R/
To
n)
Aug-11 Jan-12 Jul-12 Jan-13 Jun-13 Jan-14 Jul-14 Jan-15 Jul-15 Sep-15 Oct-15
Margins/Ton 28,403 24,235 22,465 22,339 24,579 23,580 23,341 23,701 23,701 24,550 21,010
Basic Gas Cost/Ton 4,517 5,149 4,974 5,115 5,115 5,280 5,280 5,280 5,280 7,600 7,600
GIDC Cost/Ton - 4,596 4,781 4,945 4,945 7,400 7,639 7,639 7,639 7,650 7,650
Gas Price / mmbtu
(weighted Average)161 348 348 359 359 453 461 461 461 545 545
Urea Price and Margins
GIDC:20%
pass through
31%pass through | Cumulative 62%
pass through
Concessionary Feedstock (Fertilizers Policy, 2001) fixed at USD 0.7/mmbtu | GIDC
differential (PKR 300/mmbtu) abolished | Stay Order from High Court
GIDC Benefit for New Urea plants cost saving of PKR 6,900 per ton (PKR 345/bag)
46%pass through
46%pass through
| reversed
Govt promised to revert gas
price
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea |Performance
DAP | Performance
Risk Profile
Outlook
25c
6
2
2
2
0%
10%
20%
30%
40%
50%
60%
-
100
200
300
400
500
600
700
800
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Sep-15
Cu
shio
n %
per
Ton
US
D P
er T
on
Urea Retail Price
Parity with Import Price Domestic Price Imported Price
Urea Price Declining Parity with Import Price
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea |Performance
DAP | Performance
Risk Profile
Outlook
5c and 5d
DAP Performance
Country’s largest selling Phosphate Fertilizer
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP |Performance
Risk Profile
Outlook
DAP Industry – Subsidy announced after 5yrs
0.6 0.6 0.7 0.7
0.3 0.4
0.6 0.6
0.8 0.9
0.2 0.2
1.1 1.2
1.6 1.7
0.4 0.5
(1.0)
(0.5)
-
0.5
1.0
1.5
2.0
(0.4)
(0.2)
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
CY11 CY12 CY13 CY14 9M14 9M15
Mil
lio
n T
on
s
Mil
lio
n T
on
sDAP Demand Supply Dynamics
Production Imports Stocks Ajd. Consumption
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP |Performance
Risk Profile
Outlook
5b
DAP Price Fluctuating Parity with Import Price | Thin margins for importers
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP |Performance
Risk Profile
Outlook
5c and 5d
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
100
200
300
400
500
600
700
800
900
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Sep-15
Cu
shio
n %
per
To
n
US
D P
er T
on
DAP Retail Price
Parity with Import Price Domestic Price Imported Price
Fertilizer Industry | Risk profile
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
RiskProfile
Outlook
┼ The industry’s financial risk profile is improving; debt raised for recent capacity expansion
shall be completely paid off in 2018 (mainly Fatima and Engro). Providing fiscal space to
grow further.
┼ Established Demand of fertilizers backed by vital need of agricultural output
┼ No substitute of the products
┼ Key players associated with Mari Network (62% of Industry’s capacity) have been
receiving regular/ uninterrupted gas supplies. In addition, one key provided with additional
gas, though temporary, have enabled robust cashflows consecutively for two years.
─ Permanent resolution of gas to small players is vital for their survival.
─ Limitations imposed through government intervention to pass on Gas Cost hikes may
further impede industry’s margins. Nevertheless, the players have requisite cushion to
absorb such shocks.
─ Any drop in international urea price will further constraint urea price raise to pass on cost
hikes
Fertilizer Industry
Positive Outlook
SignificanceCompetitive
AnalysisCapacities
Raw Material | Gas Supply
Situation
Urea | Performance
DAP | Performance
Risk Profile
Outlook
Bibliography
1. Pakistan Economic Survey 2014-15, issued by Finance Division Government of Pakistan – Chapter 2_Agriculture,
Page_23.
2. PACRA’s in-house research and database
3. Pakistan Economic Survey 2014-15, issued by Finance Division Government of Pakistan – Chapter 2_Agriculture,
Section (v)_Agricultural Credit, Page_35-36.
4. Pakistan Energy Year Book 2014, Issued by Ministry of Petroleum and Natural Resources. Part 1_Energy Situation,
Table 1.7_Eenergy and Non-Energy Uses of Gas in Fertilizer Sector, Page_8.
5. National Fertilizer Development Centre (NFDC) Monthly Report
a. Annexure 11_ Fertilizer Production by Product and Manufacturer
b. Annexure 5_ Plant wise Production Sales and Stock position
c. Section 9_Fertilizer Prices, Table 7_Average Fertilizer Retail Prices
d. Section 9_Fertilizer Prices, Table 8_International Prices
6. Oil and Gas Regulatory Authority, Notified Gas Prices_Consumer Gas Prices
(http://www.ogra.org.pk/cats_disp.php?cat=90)
DISCLAIMERPACRA has used due care in preparation of this document. Our information has been obtained from sources
we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this
document may be copied or otherwise reproduced, in whole or in part, provided the source is duly
acknowledged. The presentation should not be relied upon as professional advice.
Analysts
Amara S. Gondal
Jhangeer Hanif
Haider Imran
Mahina Majid
Rai Aman Zafar
Contact Number: +92 42 3586 9504
Thank You
