Sources in the industry told Pakistan Today that the price escalation would be taken at an appropriate time as there would be no pressure from the government to reduce fertilizer prices with an interim government in place.
The prevailing urea prices range between Rs1,460 to Rs1,470 per bag. Pointing at the DAP (Diammonium phosphate) demand trend, the sources said that the prices might start picking up post-June as the application of urea for Kharif crop supersedes DAP in the session. Urea prices have recently been increased by Rs90 to Rs100 per bag in the first week of May. Industry sources indicated that DAP prices have also increased by Rs50 per bag which was largely expected due to the currency devaluation and rising international prices.
They said that the increase in DAP prices came as no surprise as international DAP prices shot up by 25 per cent since the start of the fiscal year 2018 as the Rupee lost 10 per cent against the Dollar within the same period. On the other hand, domestic DAP prices had increased by 26 per cent. Sources pointed towards further price increases as the impact of currency depreciation has not been reflected in domestic prices.
The reasons for these back-to-back price increases were the elimination of federal cash subsidy, lack of clarity on provincial government’s cash subsidy schemes, the impact of previous Rs56 per bag hit which was taken when the subsidy was reduced from Rs156 per bag to Rs100 per bag, and general inflation.
However, demand dynamics may need to be considered before the implementation of a further increase in prices. On the DAP front, keeping in view the global demand trend, local prices are expected to remain on the higher end, where a Rs20 to Rs30 per bag relief to farmers on account of reduced GST (from flat Rs100 per bag to 2 per cent of ex-factory price) may be diluted by a rise in international prices
Contrarily, they said the usual seasonality seen historically during the month of May, suggests that the urea off-take could mainly be attributable to a high base, delay in Kharif sowing due to water shortage, and on-set of the Holy month of Ramzan to some extent. Lower off-take combined with fully operational gas-based plants during the month was expected to increase industry’s urea inventory by 23 per cent 530 thousand tons. The rise, however, is expected to be momentary as concerns of further hike in prices along with seasonal demand for Kharif crop sowing like cotton, sugarcane that may lead to abnormal demand trend in June whereas a historical high has been set with 1 million tons off-take on account of pre-buying.
In terms of DAP, the demand trend may start picking up post-June as the application of urea for Kharif crop supersedes DAP application. That said, DAP off-take in May was expected to remain low at 50 to 60 thousand tons as compared to 69 thousand tons of April.