On the back of best ever Kharif season in terms of fertilizer application, urea off-take returned to more modest levels in October 2017. The nitrogenous fertilizer application inched by 4 percent year-on-year, second consecutive month of low-ish urea application, as September saw an all-time low for any month.
The overall picture does not appear as grim, as the 10MCY17 off-take stands at a healthy 4.5 million tons – a healthy 18 percent increase over same period last year. The 10-month urea off-take is also comfortably clear of the 5-year average, mainly at the back of a stellar second quarter, after the farmers' package.
Recall that ambiguity around the budget period had sent urea off-take in to a near halt, but clarity emerging thereafter seems to have normalized the off-take pattern. For the first time in seven years, Pakistan is in with a realistic chance of crossing 6 million tons for the full year. Although, all of it could change should prices go up again as feared. For that to happen, the momentum has to build in November and December – and urea off-take needs to be well over 25 percent clear of 5-year CAGR of the dying months' off-take.
There is some upwards movement in international urea prices, after a long hiatus. The international commodity price has moved briskly after staying around $200-220 per ton to now at $280 per ton and growing. The local prices have so far been shielded as the government is offering subsidy and the strong off-take is also indicative of farmers taking advantage of government subsidy and the discounted prices that were on offer.
The stockpile has also come down to just over half a million tons, and might ease off pressure on local manufacturers.
The rising international prices will also offer more breathing space to local players should they decide to regain the lost margin in the days of oversupply.
On the phosphate side, things are looking up. The DAP off-take is all set to go well beyond 2 million tons for CY17 – which has happened only once previously. More heartening is the improvement in balanced fertilization ratio, which has now come down from 5.5 to 2.6 – much close to the ideal ratio of 1.75. Surely the subsidy mechanism has worked well thus far, and is likely to continue.