Rise in gas prices to up urea rates

KARACHI - A further increase in gas prices is expected in July 2008, which is likely to be followed by a subsequent increase in urea prices.
Urea during the current Kharif season remains strong with the government plans of importing more urea; approximately 350k tons. Phosphate sales would largely be subject to the farmer liquidity situation, which is expected to improve following the wheat harvesting and increase in wheat support prices by Rs115/ton to Rs625/ton.
These views were highlighted at briefing, arranged by ENGRO Chemical Pakistan Ltd.
ENGRO's management believes that there exists considerable inventory of DAP (443k tons Kharif opening inventory as per NFDC), which is enough to cover for this Kharif season and may even carry forward in the next Rabi season Net sales for ENGRO grew by 138 percent YoY to Rs4,566mn on the back of increased volumetric sales of Urea and Phosphatic (DAP/MAP) fertilizer sales, which increased YoY by 128 percent and 1,800 percent respectively to 322k tons and 19k tons in 1QCY08. Gross profit increased by 135 percent YoY to Rs1,651mn with the gross margins showing a slight decline of 50bps YoY to 36.2 percent largely due to the very low imported fertilizer sales in 1QCY07.
A rise in fuel gas prices by 5.5 percent to Rs251.55/mmbtu was offset by higher Urea prices whose weighted average price for 1QCY08 was Rs567/bag. Increase in ENGRO Urea sales was inline with the rise in industry's Urea sales which rose by 62 percent YoY to 1,403k tons. Reasons for the increase in sales were: 1) high opening inventory due to loss of sales in the last week of Dec-07 (BB's assassination), 2) low base effect because of the low Urea sales in 1QCY07 (very high opening dealer inventory), and 3) stratospheric climb in DAP prices (132 percent YoY), which caused substitution of DAP with Urea. Total Urea production for 1QCY08 remained stable at 256k tons (257K tons in 1QCY07) with a capacity utilization of 105pc. 
Industry DAP sales declined by a significant 68 percent YoY to 105k tons largely due to the unprecedented price hike. ENGRO's Phosphate sales were negligible during 1QCY07 (1k ton) as compared to 19k tons in 1QCY08. Sales of Zarkhez (multi nutrient) fertilizers declined by 100 percent YoY to 19k tons while production increased by 14 percent to 33k tons.