After a disappointing 1QCY19, Fauji Fertilizer Bin Qasim Limited (FFBL), made a comeback of sorts in 2QCY19. That said, 1QCY19 inflicted big enough losses for the bottom line to turn green for 1HCY19. The country's sole DAP fertilizer producer had it tough in the first quarter operationally as well, as it witnessed a sharp drop in urea and DAP sales, which meant thin top line, coupled with increased cost of production, borrowing and adverse currency movement – all of which combined to give FFBL a hefty after tax loss in 1QCY19.

Things changed for the better in the second half, as both urea and DAP sales have revived massively over first quarter. For FFBL, the first two quarters are not the best performing ones, as the off-take usually picks up in the latter half of the year, which makes the strong DAP sales growth in 2QCY19, even more vital.

FFBL has sold a little over 200 thousand tons of DAP in 1HCY19, of which only 19 percent came in 1QCY19. The DAP production on the other hand stood at 386 thousand tons, leaving with a June ending inventory of 228 thousand tons for DAP, having started the year with 63 thousand tons of inventory.

The industry DAP off-take in 1HCY19 has gone down by 6 percent year-on-year, but the strong comeback in 2QCY19 with the highest ever off-take has more than made up for a much below par first quarter.

But the rising inventory level may well be a problem for FFBL, as imports have continued to be steady and the total stockpile (minus FFBL) has come down from 425 thousand tons in January 2019 to 276 thousand tons in June 2019. In contrast, FFBL's DAP inventory has risen from 63 thousand tons in January to 227 thousand tons in June 2019 – having a share of 45 percent in overall inventory.

DAP international prices, in landing terms have stayed near or lower than domestic DAP prices – making it difficult for the company to pass on the entire impact in events of cost increase. And the recent wave of currency depreciation, and increase I raw material prices – will again stand to test the pricing power. With massive inventory in the wings, FFBL may already be under pressure to dispose at lower margins.

The adverse currency movement during the 2QCY19, also resulted in a sharp spike in other expenses, which are likely on account of exchange losses. Other income continues to be the saving grace in hard times. FFBL would ideally want favourable pricing and off-take patterns for the remaining half of 2019, in a bid to close the year on a high.

Copyright Business Recorder, 2019