The government tries to persuade the International Monetary Fund (IMF) to renew its $6 billion bailouts, but fertilizer costs are set to rise.
Given recent increases in fuel and energy prices, according to research by “JS Global,” a rise in end-user gas prices is probable ((the last increase for the Fertilizer sector in 2019).
The Oil and Gas Regulatory Authority (OGRA) has approved a gas pricing increase for gas network providers of 45 percent. Fertilizer factories are currently taxed Rs. 302 per MMBtu for feedstock and Rs. 1,023 per MMBtu for fuel under the Fertilizer Policy 2001. Companies like Fatima Fertilizer Company (FATIMA) and Engro Fertilizers Ltd (EFERT) had a special feed gas rate arrangement at their Even plant.
“Since then, FATIMA has been booking gas bills at regular rates,” he continued. Even though efforts concessionary term is currently in dispute since the firm had substantial gas interruptions at the start of the ten-year agreement, it has been incurring gas costs at regular rates on a prudent basis since September of last year.”
Increased Gas Prices Have an Impact
Given the government’s recent notice on urea prices, the analysis shows that passing on the cost-push to farmers would be a challenge. To negate the impact of an Rs. 100 per MMBtu rise in feed rates on the largest urea maker FFC, an increase in urea pricing of roughly Rs. 118 per bag would be required.
EFERT, on the other hand, would only require an Rs. 82 per bag price increase. According to the report, approximately 30% of the feed gas used by EFERT (i.e. 70% of the base plant) is paid at Petroleum Policy 2012 prices, necessitating a lower per bag price rise.
On the other hand, because the price of EFERT’s portion is determined by global oil prices, it will be influenced in a rising oil price scenario. Notice how EFERT has a relative advantage over its contemporaries in a scenario where feed gas rates increase by roughly Rs. 100 per MMBtu, as shown in the table below.
In May 2022, sales of urea and DAP are expected to fall.
According to preliminary data, urea sales in May 2022 are predicted to total 412,000 tonnes, down 18% year over year (YoY). The recent import of 100,000 tonnes has helped to alleviate the inventory crisis. According to the research, urea’s closing inventory for May 2022 is predicted to be around 436,000 tonnes, based on a production forecast of 530,000 tonnes for the month.
Furthermore, sales of di-ammonium phosphate (DAP) are predicted to total 92,000 tonnes in May 2022, a fall of 47% year over year, owing to the increased price of the commodity. On a year-over-year basis, DAP sales for the 5MCY22 are likewise down 16 percent.