S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Apr 2 - 8, 2012
The fertilizer industry plays an important role in the development of both agriculture and industrial sectors in Pakistan.
This industry was in turmoil due to 70 per cent rise in gas prices during 1999. Fertilizer is the most important input for enhancing productivity. As per the National Fertilizer Development Centre (NFDC), contribution of balanced fertilization towards increased yield ranges 30 to 60 per cent in different crop production regions of the country. One kg of fertilizer nutrient produces about eight kg of cereals (wheat, maize, and rice), 2.5 kg of cotton, and 114 kg of stripped sugarcane.
All of our soils are deficient in nitrogen; 80-90 per cent is deficient in phosphorus and 30 per cent in potassium. Wide spread deficiency of micronutrients are also appearing in different areas.
Soil fertility is continuously depleting due to mining of the essential plant nutrients from the soils under intensive cultivation.
The domestic production of fertilizers during the first nine months (July-March) of FY 2010-11 was up by 2.7 per cent over the same period last year (SPLY). The import of fertilizer decreased by 50 per cent. Hence, the total availability of fertilizer also decreased by 15 per cent over the SPLY. Total offtake of fertilizer has also reduced by 11.3 per cent. Nitrogen offtake decreased by 11.1 per cent while that of phosphate by 13.8 per cent. However, potash offtake surged by 59.7 per cent. Major reason for reduced fertilizer offtake is occurrence of devastating flood in the country during monsoon season of 2010, which affected one third of the cropped area. Consequently, major crops were seriously affected.
Another reason for reduced offtake of fertilizer is high price of phosphatic fertilizers especially DAP which went up by 46 per cent during the first nine months of 2010-11 over SPLY. Furthermore, FY2012 is going to be the hard-hitting for the fertilizer manufacturers owing to imposition of gas infrastructure development surcharge (GIDS), persistent gas shortages, increasing sector regulation, and declining spread between local and international fertilizer prices.
The troubles of local fertilizer industry are already worsening day by day amid decline in urea demand and continuation of gas curtailment. Moreover, the massive improvement in the global fertilizer's production and weak commodity prices are also aggravating the gloomy situation.
The local urea prices have crossed the mark of Rs1,580 per bag, hence there would be a little room for the local manufacturers to raise the urea prices in near future particularly in the backdrop of falling international prices. However, after the implementation of proposed gas surcharges in the form of GIDS, the manufacturers could pass on the cost burden to the local farmers but it would not supplement the earnings of the fertile manufacturers.
The increase of Rs197/mmbtu in feed stock coupled with 14 per cent increase in fuel stock prices could bring another round of price hike as manufacturers would pass on the cost impact to the consumers. However, the earnings of the fertilizer manufacturers are unlikely to take the positive impact, since this will take local urea prices at par with the international urea prices limiting manufacturer's ability to further increase the prices irrespective of the gas supply situation. Higher fertilizer prices along with weak farmers income has dragged down the demand of fertilizer.
The FY2011 remained the worst period for domestic fertilizer plants, which could hardly produce 4.9 million tonnes of urea against an installed capacity of 6.9 million tonnes due to announced and unannounced gas shortages.
SNGPL based fertilizer plants were badly hit and hardly managed to achieve 31 per cent of fertilizer production against their installed capacity due to unavailability of gas.
Currently, all the four fertilizer plants on SNGPL network were facing a complete shutdown, which resulted in a huge production and financial losses to these fertilizer plants.
Dawood Hercules plant produced only 39 per cent of urea, which stood at 199,000 tonnes against its production capacity of 513,000 tonnes. Pakarab Fertilizer plant only produced 27 per cent of urea, which stood at 29,000 tonnes against its production capacity of 106,000 tonnes. Agritech plant produced 34 per cent of urea, which stood at 146,000 tonnes against its production capacity of 428,000 tonnes and Engro's new plant produced 27 per cent of urea, which stood at 347,000 tonnes against its production capacity of 1.26 million tonnes.
SNGPL based plants could only produce 31 per cent of their installed production capacity which resulted in billions of rupees of loss to the fertilizer industry which has invested over 2.3 billion dollars in enhancing its production capacity in last three years.
The government preferred to import 1.45 tonnes of urea by spending a hefty amount of $783 millions from precious foreign exchange. In addition to this, the government also paid huge subsidy of Rs54 billion to keep the prices of imported urea at par with the local ones.
The fertilizer industry is the second largest consumer of natural gas and remains to be one of the most important industrial sectors in Pakistan. The future of the fertilizer hinges on adequate gas supply to the manufacturers. The domestic fertilizer demand is expected to remain strong in the next cropping season on the back of higher farm income from harvested crops.
PRODUCTION & OFFTAKE OF FERTILIZER ('000' N/TONS)
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