FERTILIZER INDUSTRY

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Aug 6 - 12, 2012

World fertilizer consumption sharply rebounded in 2009-10 and 2010-11, with growth rates of 5 to 6 per cent in both campaigns. In 2010-11, aggregate world consumption fully recovered from the 2008-09 downturns, to 172.2 Mt vs 167.9 Mt in 2007-08.

WORLD FERTILIZER CONSUMPTION

MT NUTRIENTS 2011 2012E 2016F
Nitrogen N 107.5 109.5 114.4
Phosphorus P2O5 40.9 41.9 45.3
Potassium K2O 28.5 28.5 32.6
Total 176.9 179.9 192.3

In 2011-12, world demand responded to very attractive prices for most agricultural commodities. Total demand is forecasted to be up by 2.8 per cent, to 177 Mt. Demands for nitrogen (N) and phosphorus (P) world increase by 4 and 1.4 per cent, respectively. It would reach new highs at 108.2 Mt N and 41 Mt P2O5. Potassium (K) demand is seen as rising only marginally 0.4 per cent, to 27.7 Mt. Aggregate demand is anticipated to rise in all the regions but Western and Central Europe, where very dry conditions affected the 2011 winter crop harvest. The largest increases in volume are seen in East Asia and in Latin America.

With prevailing strong agricultural market fundamentals, global fertilizer demand in 2012-13 is projected to increase by 2.5 per cent to 181.4 Mt. after an expected 6.0 per cent year-on-year expansion, K demand is seen as fully recovering from the 2008-09 downturn, to 29.4 Mt. Fertilizer demand would increase in all the regions but north America, where declining crop prices compared to last year are expected to lead to lower application rates. Demand growth is seen as regaining momentum in South Asia after the disappointing 2011-12 campaign.

When compared to the 2007-08 campaign, world fertilizer demand is anticipated to have fully recovered for the three nutrients by 2012-12. During the five year period from 2007-08 to 2012-13, global demand is increased.

South Asia has been by far the main contributor to the expansion of world demand during these five years: with an estimated 8.1 Mt growth, South Asian demand would account for 60 per cent of the global net increase. In contrast, demand in Western and Central Europe would remain more that 2 Mt below its level of five years earlier. World demand is projected to reach 192.8 Mt by 2016-17, corresponding to a compound annual growth rate of 2.1 per cent compared with the base year.

In Pakistan, Fertilizer is also the most important and expensive input in agricultural production. The contribution of balanced fertilizer use towards increased yield varies from 30 to 60 per cent in different crop production areas of the country. One kg of fertilizer nutrient produces about 8 kg of cereals (wheat, maize and rice), 2.5 kg of cotton and 114 kg of stripped sugarcane. All of Pakistan's soils are deficient in N, 80 to 90 per cent are deficient in P, and 30 per cent are lacking in K. The wide spread deficiency of micronutrients is also appearing in different areas. Lands used for single crops are depleting soil fertility because lands are using only certain essential plant nutrients and are intensely cultivated. When these soils go without being replenished, future crops are threatened from loss of micronutrients and other essential plant nutrients. The domestic production of fertilizers from July- March, 2011-12 declined by 1.4 per cent when compared to the last year's production. The fertilizer industry experienced a curtailment of natural gas and some urea plants produced less than their production capacity. However, a timely import of urea addressed the absence in supply and total availability of fertilizer increased by 16.3 per cent. Despite the increased supply of urea, total consumption of fertilizer reduced by 4.9 per cent. Nitrogen consumption increased by 0.3 per cent while that of phosphate decreased by 22.3 per cent and potash by 36 per cent. The major reason for reduced fertilizer consumption was the effect of heavy and destructive rains in the Sindh province during the monsoon season in 2011, which adversely affected crop lands. Another reason for the reduction in consumption of fertilizer was the increase in price of all fertilizers. The prices of urea went up by 81.4 per cent in July-March, 2011-12 as compared to the same period of the last fiscal year. The prices of DAP, CAN and NP also increased by 38.8 per cent, 75.5 per cent and 45.7 per cent, respectively, over the same period last year.

PRODUCTION AND OFF-TAKE OF FERTILIZERS ('000' Nutrient Tons)

YEAR DOMESTIC PRODUCTION % CHANGE IMPORT % CHANGE TOTAL % CHANGE OFF-TAKE % CHANGE
2007-08 2822 - 876 - 3698 - 3581 -
2008-09 2907 3.0 568 -35.1 3475 -6.0 3711 3.6
2009-10 3082 6.0 1444 154.2 4526 30.2 4360 17.5
2010-11 3076 -0.2 645 -55.4 3721 0.6 3933 -9.8
2010-11 P 2287 - 532 - 2819 - 3064 -
2011-12 P 2255 -1.4 1024 92.6 3279 16.3 2913 -4.9

CONCLUSION

No doubt, the year 2011 was the worst period for domestic Fertilizer plants as they could hardly produce 4.9 million tons of urea against an installed capacity of 6.9 million tons due to announced and unannounced gas shortages throughout the year. Based on this fact, Fertilizer industry has been given priority for gas supply by the Government of Pakistan, once the requirement of domestic consumers is fulfilled. Presently, the government had assured Fertilizer manufacturers that gas would be provided to produce maximum Fertilizer for the agriculture economy.