Fertilizer price and demand outlook 2014 and beyond JSGCL Research Added by Ayaz Saved Tags: JS Global

l Capital Ahmed on under FERTILIZER January 30, 2014. SECTOR, HEADLINES

Fertilizer price and demand outlook 2014 and beyond JSGCL Research

By: Naveed Tehsin, naveed.tehsin@js.com + 9221 111-574-111 Ext: 3100 JS Global Capital Limited As per National Fertilizer Development Centre (NFDC), December 2013 urea offtake clocked in at 674k tons, down 29%YoY due to higher base of last year. In 2013 urea offtake clocked in at 5.9mn tons (+13%YoY). Meanwhile DAP offtake clocked in higher at 173k tons (+36%YoY) in December 2013 which took 2013 DAP offtake to 1.6mn tons (+37%YoY). Sharp decline in international DAP prices also induced farmers into buying DAP. International DAP prices touched US$350/ton in November 2013 (from a high of US$508/ton in April 2013) and resulted in 9% reduction in domestic DAP prices over 4Q2013 (-12%YoY). We believe 2014 urea demand will normalize at ~5.8mn tons with domestic production at 4.9mn tons (assuming Engro receives Guddu gas till March 2014). If Engro receives Guddu gas till June 2014 (as rumors suggest) domestic production can jump to 5.1mn tons, suggesting ~0.7mn tons of urea import for 2014 vs. 1.0mn tons import in 2013. For 2014, we believe local producers look all set to sell whatever they produce with limited volume competition from imports. Meanwhile recent spike in international urea prices (+43% since September 2013) would widen subsidy on fresh imported urea to Rs1,000/bag suggesting some room for local producers to gradually raise prices inline with cost push. 2013 Offtake: Urea (+13%YoY) and DAP (37%YoY) As per National Fertilizer Development Centre (NFDC), urea offtake for December 2013 has clocked in at 674k tons i.e. down -29%YoY due to higher base of last year. Recall that in December 2012, 1) price incentive provided by local urea producers to match the price of the imported (subsidized) urea, and 2) the announcement of 14% higher wheat support price, induced buying towards the end of year. Note that December 2013 urea offtake has meanwhile remained on the higher side compared to 2013 monthly average of 491k tons. Overall in 2013, urea offtake clocked in at 5.9mn tons (+13%YoY). As far as DAP offtake is concerned, the same clocked in 36%YoY higher at 173k tons in December 2013 which lifted overall 2013 DAP offtake to 1.6mn (+37%YoY). The demand for fertilizer in last two months of 2013 increased significantly owing to pre-buying by farmers/dealers in anticipation of urea price increase due to predicted gas price hikes.

Lower DAP price and constant wheat support price The govt. has decided not to raise FY14 wheat support price which stands at Rs1,200/maund and is almost in line with international wheat prices which are hovering around ~US$290/ton compared to the support price of US$300/ton. Meanwhile, sharp decline in international DAP prices also induced farmers into buying DAP in late 2013. International DAP prices touched US$350/ton in November 2013 (from a high of US$508/ton in April 2013) and resulted in 9% reduction in domestic DAP prices over 4Q2013 (-12%YoY). Obviously, there are other factor input costs that have a say in the farmers nutrient use decision but fertilizer input costs play a major role where we estimate nutrient cost at ~25% of the total cost of crop production and ~40% of variable cost of production. 2014 urea imports likely be lower by 30% In 2013, domestic urea production stood at 4.8mn (+16%YoY) primarily attributable to enhanced production from Engro at 1.6mn (+66%YoY), where 1) operating the more efficient Enven plant on Mari, and 2) additional gas diverted from Guddu resulted in both of Engros plants being operational for part of the year. Going forward in 2014, we believe urea demand will normalize at ~5.8mn tons, where domestic production is likely to clock in at 4.9mn tons (including the impact of Engro receiving Guddu gas to till March 2014). Note that if Engro receives Guddu gas till the end of 1H2013 (as market rumors suggest) domestic production can jump to 5.1mn tons, suggesting ~0.7mn tons of urea import for 2014 vs. 1.0mn tons import in 2013. Meanwhile, we anticipate that revalidation of the GSA pertaining to Kunnar Pasaki Deep (KPD) and start of gas flow from there will narrow down this gap to minimal from 2015 onwards. Moreover, the government has recently decided in principle to wind-up NFML and distribute imported urea through local producers in accordance with their share in total production. This along with price matching of imported and locally produced urea is likely to 1) provide limited downside to current urea prices as Engro may not reduce prices further post allocation of concessionary gas and (3) lower incentive for dealers to opt for cheaper imports hence. Imported and local urea price differential at Rs1,000/bag For 2014, we believe local producers look all set to sell whatever they produce with limited volume competition from imports. While the government has of late decided to equalize the prices of domestically produced and imported urea, note that due to a recent run up in international urea price (currently ~US$400/ton FOB and up by a sharp 45% vs. the low of US$280/ton in September 2013), government subsidy on imported urea should expand to ~Rs1,000/bag on fresh imports. This in our view creates a better opportunity for local producers to gradually pass through incremental gas cost impact to farmers. Key risk, in our view, is a sharp reversal in the trend of international urea prices.

ISLAMABAD: Minister for Water and Power Khawaja Asif said on Thursday that supply of 500 million cubic feet of gas per day to the CNG sector and subsidised gas to the fertiliser industry would not be allowed to continue. Speaking at a conference on power sector reforms, he said the supply of gas to the CNG and fertiliser sectors at the existing rates were unfair and simply unacceptable. The minister said the energy crisis would not end in days and months; it would take two to three years. He said the government had prepared a comprehensive plan to cope with the energy crisis. It would be announced after approval by Prime Minister Nawaz Sharif. Mr Asif said that shortage of water was emerging as a bigger challenge than loadshedding, adding that construction of some dams had either been politicised or deferred for vested interests. He alleged that the Musharraf regime had ignored development of water storage capacity in the country.

He said that despite capital injections, the country had sustained more than Rs1 trillion losses because of power crisis over the past five years. He said loadshedding could not be ended in days or months, but promised that the situation would get better in future. The minister said the government had decided to repair and upgrade a number of power plants currently lying nonfunctional or operating below capacity to improve electricity supply. The current shortfall of 4,000 to 5,000MW will soon be brought down to a reasonable level. Mr Asif said distribution companies had been asked to strictly follow the loadshedding schedule and reduce outages with improved management of available resources. The power shortage has become a matter of life and death for us and we will resolve it as a challenge. The minister said the country had been losing over Rs113 billion annually for eight years mainly because of the criminal delay in completion of the Nandipur power project. Without naming anyone, he said Rs100 million had been taken as bribe for the project. The purchase of expensive electricity from independent power producers kept on increasing electricity rates, he said, adding that the biggest challenge for the government was to provide electricity at affordable rates. He said annual corruption in the power sector had reached Rs207bn which was an alarming sign for the government. He said the official figures of 22 per cent line losses were highly fudged. It has been observed that chairmen of the boards of directors of distribution companies were getting uninterrupted electricity supply for their factories. Better farm economics prompted sales volume during Jan14 Global Research Added by Ayaz Saved Tags: Global Securities Pakistan Ltd. Ahmed on under FERTILIZER March 3, 2014. SECTOR, HEADLINES

Better farm economics prompted sales volume during Jan14 Global Research

By: Imran Ahmed Patel, imran.pateel@gslpk.com (+92.21.3245.7543) Global Securities Pakistan Ltd According to data released by National Fertilizer Development Centre (NFDC), total urea off-take (including domestic and imported urea) registered a double-digit growth of 20% YoY to 619k MT during Jan14, against 517k MT urea sold during same period last year as better farm economics kept buying sentiment of farmers upbeat. On a sequential basis, total off-take declined by 8% during Jan14, compared to 674k MT urea sold during Dec13 with the decline primarily attributed to pre-buying of urea in 4Q CY13 on the anticipation of increase in the urea prices in CY14.

Urea production clocked in at 399k MT during Jan14, increasing by 18% YoY (-5% MoM) compared to 339k MT urea produced during same period last year because of higher availability of gas to EFERTs plant, which contributed 164k MT (+62% YoY) to total urea production during Jan14.

MT Urea EFERT FATIMA FFBL FFC NFML -Imported Others -Domestic TOTAL

Jan13

Jan14

Dec13

Jan14

122,276 14,408 4,770 211,394 158,237 6,223 517,308

174,307 25,356 510 193,108 221,760 4,109 619,150

43% 76%

157,680 32,565

174,307 25,356 510 193,108 221,760 4,109 619,150

11% -22% -97% -10% 9% -91% -8%

-89% 17,860 -9% 40% 215,618 203,406

-34% 46,876 20% 674,005

Source: National Fertilizer Development Centre (NFDC)

Company-wise urea off-take data shows that EFERT and FATIMA both experienced an improvement in sales by 43% YoY to 174k MT and 76% YoY to 25k MT, respectively. Moreover, NFML urea sales also posted a growth of 40% YoY to 221k MT, due to timely arrival of imported urea in the domestic market. Conversely, FFCs urea sales saw a decline of 9% YoY to 193k MT. Gas curtailment dented DAP production in Jan14 DAP off-take during Jan14 witnessed a decline of 49% YoY (-84% MoM) to 27k MT, compared to 53k MT in Jan13 because of its lower application during post-sowing period. As far as DAP production is concerned, DAP production remains on the lower side at 3k MT during Jan14, down by 94% YoY ( -95% MoM) against same period last year with the decline because of gas curtailment on SSGC network due to winters. Consequently, FFBLs DAP production declined significantly to 3k MT (-94% YoY) during the period.

MT DAP EFERT- Imported FFBL FFC- Imported Others -Imported TOTAL

Jan13

Jan14

Dec13

Jan14

0 32,461 160 20,722 53,343

5,975 12,360 627 8,014 26,976

n.m -62% 292% -61% -49%

36,728 64,298 27,238 44,253 172,517

5,975 12,360 627 8,014 26,976

-84% -81% -98% -82% -84%

Source: National Fertilizer Development Centre (NFDC)

DAP prices surged by ~PKR 200/bag in local market Industry rumors suggest that local DAP prices have risen by PKR 200/bag since Jan114 (~USD 33/MT) to PKR 3,630/bag. A key driver in this price increase has been strong demand from major markets to meet spring demand, and a tight supply of phosphate rock from Morocco because of stormy weather in Mediterranean. However, the recent uptick in phos-acid prices by USD 70/MT will largely off-set the entire benefit of the price increase. Earlier during the year, international DAP prices had declined to USD 340/MT because of lower international demand from India. Recently, however, international DAP prices have rebounded to USD 478/MT as of Feb 2814, likely supported by the seasonal uptick in DAP demand and tight supply of phosphate rock from Morocco. This recent increase in international DAP prices will increase the landed price of DAP to ~PKR 3,350/bag, offering marginal relief to FFBL. In spite of this increase, local DAP still trades at a premium to international DAP; therefore, the company will still be unable to pass the impact of rising gas prices caused by the GIDC hike. As a result, we estimate the companys primary margins to average ~USD 250/MT and anticipate FFBLs earnings to decline by 14% YoY to PKR 4,802mn (EPS: PKR 5.14) during CY14. Fauji Fertilizer Bin Qasim Limited DAP primary margins jump by 16% AHL Research Added by Ayaz Saved Tags: Global Securities Pakistan Ltd.

Ahmed on under FERTILIZER

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28,

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Fauji Fertilizer Bin Qasim Limited DAP primary margins jump by 16% AHL Research

By: Tahir Abbas, tahir.abbas@arifhabibltd.com +92-21-32462589 Arif Habib Limited Phosphoric acid contract price for Fauji Fertilizer Bin Qasim (FFBL) was settled at USD 680/ton for 1QCY14, up 11% QoQ while still down 12% YoY. Accordingly FFBL has increased DAP prices by PKR 210/bag to maintain its primary margins for

DAP. We estimate the primary margin of DAP to stand at USD 267/ton in 1QCY14. We maintain our likeness towards the company as primary margins of DAP is expected to remain lucrative during CY14. Our DCF based June-14 price objective works out to be PKR 52/share implying an upside potential of 20% from current levels. We thus maintain our BUY recommendation for the stock. DAP prices adjusted upward to maintain primary margins International phosphoric acid prices have been spiraling downwards since Jul-12 from USD 1080/ton to USD 610/ton in 4QCY13. However, with commencement of CY14, this downward trajectory rebounds with upward trend. As per our industry sources, FFBL increased DAP prices by PKR 210/bag during Feb-14. The increase in DAP prices was on account of 11% QoQ jump in phos-acid prices to USD 680/ton. This will eventually help FFBL to manage its DAP primary margins, which previously clocked in at USD 230/ton for Jan-14 down 10% QoQ when compared with 4QCY14 margins of USD 257/ton. Following this increase DAP primary margins jumped to USD 267/ton up 4% QoQ. DAP is expected to be in limelight going forward We expect that company would focus more on DAP due to its better margins. The company has operated its DAP plant at 114% utilization level in CY13 amid better demand and margins; the same strategy is expected for CY14. Gas curtailment updates DAP plant was shut down for 47 days in 1QCY14 from 7-Jan-14 to 22-Feb-14. On the other hand urea plant is expected to be operational in Mar-14. We expect gas curtailment to remain at 45% during the year. However, 1Q gas curtailment was usual and incorporated in our models. Key investments updates In accordance with the group policy, FFBL is also diversifying its investments. The wind power projects are expected to come online by 3QCY14 and 4QCY14. As far as meat business is concerned, it is expected to be operational by 2QCY15. This would eventually add further value going forward. Fertilizer firms profit increases by 59pc November 02, 2013 SALMAN ABDUHU 0

LAHORE - After witnessing a decline of 33 per cent in profitability in 2012 due to gas curtailment, Pakistans fertilizer sector has experienced a reversal in fortunes, as fertilizer sector posted profit growth of 59 per cent in 9M2013 mainly on the back of increased off-take. This was evident by urea sales growth of 29 per cent to 3.5 million tons in 9M2013 by local producers. The cumulative profit of major five companies, representing 95 per cent of total local fertilizer offtake stood at Rs27 billion in 9M2013 versusRs17 billion in the same period last year. In 9M2013, fertilizer sector posted healthy revenue of Rs148 billion as against Rs121 billion in the same period last year, depicting growth of 23 per cent. The vital growth driver of sample companies remained 25 per cent volumetric increase in urea sales, in comparison to this industry off-take (including imported) grew by 14 per cent. Another thing that led to better local sales is absence of NFML under-cutting local urea manufactueres. During same period previous year NFML was selling its urea at a discount of Rs150-200/bag as compared to local urea. Fertilizer industry expert Asad Siddiqui observed in a report that profitability of the sector was supported by better gross margins that improved by 3pps to 43 per cent in 9M2013 as against 40 per cent in the same period last year. Excluding Engro Fertilizers, gross margins of the sector inched up by mere 40bps, which shows that prime impetus to the gross margins was provided by robust gross profitability of Engro Fertilizers. Furthermore, declining interest rate also bode well for sectors profitability as sector financial charges declined by 18pc to Rs12.6b versus Rs15.4b in the same period last year. Reduction in financial charges coupled with follow through impact of topline growth has strengthened sectors interest coverage ratio which has increased to 4.1x in 9M2013. This resulted in the sector to posting profit growth of 59pc 9M2013. This growth excluding Engro Fertilizers was 19pc. Engro Fertilizers was the star performer of fertilizer sector as revenue grew by 78 per cent to Rs34 billion in 9M2013.

This was achieved mainly due to company operating its more efficient Enven plant throughout 9M2013 and temporary allocation of Guddu gas enabling it to run both its plants in 3Q2013. As a result improvement in urea sales by 80 per cent in 9M2013 was witnessed. Engro Fertilizers have relatively high financial leverage amongst fertilizer sector companies. As a result 78 per cent increase in revenue turned around its bottom line into profit of Rs3.2 billion in 9M2013 from loss of Rs3 billion in the same period last year. New formula to produce fertilizer from local coal September 05, 2013 USMAN CHEEMA 0

ISLAMABAD - Ministry of Science and Technology has come up with a formula to produce fertilizer from local coal that will cost only Rs 600 per 50 kg bag as compared to the imported DAP fertilizer that is sold at Rs 4000 per bag in the market. Secretary Ministry of Science and Technology Kamran Ali Qureshi while talking to TheNation said that PCSIR, an institution located in Karachi working under the ministry, has performed multiple experiments on coal to fertilizer project and finally has claimed that it is successful thus making the country able to produce local DAP fertilizer that mostly is imported from other countries. Kamran Qureshi told that Minister for Science and Technology and he himself visited PCSIR office in Karachi and

witnessed the development made by the organisation. PCSIR claims that it is providing the fertilizer to farmers on experimental basis and the results are wonderful and no adverse affect has been reported yet. It is also pertinent to mention here that coal to fertilizer formula already exist in the world but in Pakistan it has been done for the very first time. The formulas mostly are owned by the companies so whoever wants to do that have to conduct experiments on its own. PCSIR also has claimed in front of Secretary Science and Technology and Minister that the demand for the newly developed fertilizer is increasing due to its good results. Kamran Qureshi whereas said that Ministry officially did not release such information earlier because it did not want to announce it prematurely and still want to conduct more experiment before launching the formula for sale to private companies. Responding to a question, Secretary said that ministry cannot make the formula public as it has to generate its income through such inventions and most probably it will give the formula to some company that could be able to pay good royalty amount to the government. In response to the question that is it possible that after transfer of formula to private company the price will not be Rs 600 for the bag? Secretary said that there is more possibility that the price will even decrease by the claimed figure as the company would be able to produce fertilizer on large scale that will help reduce its cost. Fertilizer sector invested $2.3 billion in 4 years May 16, 2013 OUR STAFF REPORTER

LAHORE - Fertilizer sector has invested $2.3 billion in last 4 years making Pakistan self-sufficient in urea production and earned availability sectors in huge of profit this terms key of despite farm gas input supply to return suspension at equity the to for cost its a long effective time. rates. Industry circles said that with consistent gas supply to urea plants, the new government of the PML-N can ensure timely farmers on It is to be noted that the fertilizer industry has remained the best performer at the capital market, as it has surpassed all paying shareholders. Industry circles were of the view that by not producing urea locally, country has to import urea which is the most expensive form of energy on MMBTU basis, costing around $23/MMBTU, whereas RFO and LNG would be 30-50pc less expensive than urea on a MMBTU basis. They said that Pakistan cannot afford to spend hundreds of millions of dollars on urea import and they are hopeful that PML-N government would ensure judicious distribution of gas amongst all the sectors of economy. They said that all other industries have alternative fuel options except fertilizer sector that uses gas as raw material to produce the key farm input urea for the farmers that ensure food security of the masses as well as provide raw material to important industries like textile and food processing. SNGPL based four plants faced more than 300 days of gas curtailment in year 2012. If gas is discontinued to fertilizer plants in 2013, Pakistan would have to import 1 million tons of urea which can cost national exchequer $450 million dollars and a subsidy of Rs21 billion to match the imported urea price to domestic urea prices. They said that Fertilizer sector is not burning the gas to run the plants, it offers maximum value addition by converting the raw gas into precious urea grains and country hugely benefits from the fertilizer industry.

Meanwhile, Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) has congratulated PMLN and its leadership Mian Muhammad Nawaz Sharif and Mian Muhammad Shahbaz Sharif for securing the majority in election and hoped that PML-N Government would revive the agriculture economy of the country to ensure farmers well being and food security of 190 million countrymen. Pakistan despite being an agriculture economy, agriculture sector remained the worst hit and most neglected area of economy in last few years. With the PML-N government in the power, we are confident that Mian Nawaz Sharif would ensure early revival of the agriculture sector through better and long-term policies. He said that PML-N leadership fully understands the importance of agriculture sector for the quick revival of the economy and fertilizer sector being an integral part of agriculture economy would be given due importance while allocating the precious gas resources. Fertiliser the goldmine of Pakistan Posted By Editor On August 26th, 2013 04:37 PM | Article And Views, Featured Share on facebookShare on twitterShare on deliciousShare on diggShare on stumbleuponShare on redditShare on emailMore Sharing Services Print this Report

By Waheed Hamid August 08, 2013 Published in Business Recorder http://www.brecorder.com/articles-a-letters/187:articles/1219029:fertiliser-the-goldmine/ Pakistan is an agricultural country with approximately 70 percent of its population living in the villages. The major source of their livelihood is agriculture. Agriculture employed 66 percent of the total workforce in 1950-51 but by 1999-2000, this figure dropped to 47.3 percent and this trend continues. This shows that people are now not interested in farming. This decline indicates decreasing incentives by the government to the agriculture sector. Even today when Pakistan faces acute economic crisis, its domestic food produce is the mainstay of economic survival strategy. The proposed agreement with Iran of barter of electricity with Pakistani wheat and rice is a perfect example. This productive sector of Pakistan now faces the challenge of increasing population, expanding cities and industrialisation spread out across productive land, reducing the agricultural land and forcing an increase in per acre yield. The demand of increase in per acre production therefore becomes an important facet of agriculture in Pakistan which cannot be met without availability of cheap Fertiliser to farmers along with crop rotation techniques and other measures. Wheat production in Pakistan slid to 23.3 million tons in 2012-13, the lowest in four years and down from 25 million tons a year ago. Annual wheat demand in Pakistan is 26 million tons, which the country has not been able to achieve for quite some time, and this year experts estimate that total production will be around 23 million tons, which is three million short of current requirements and may hamper our barter agreement for electricity with Iran. Fertiliser

prices and its availability play a huge role in constraining the use of fertiliser by small farmers which directly effects overall agri produce. In this backdrop, even working of options for preference of expensive import of fertiliser over domestic subsidy and facilitating the domestic producers under pretext of so called gas shortage is quite ununderstandable phenomenon. The experts say that gas shortage is a misperceived slogan coined by the interested party to cover the unprofessional wastage and theft in the CNG and IPP sectors. The fertiliser sector in Pakistan has not been able to get its due share in long term government policies . The trust reposed in Fertiliser sector by a government at one time has produced results. The private sector has come up with huge investment and its present infrastructure not only ensures sufficient cheap and good quality fertiliser for domestic use but has the potential to earn foreign exchange. Pakistan can now produces about 7 million tons of urea per year which is more than 4% of the worlds urea (Nitrogenous) output but produces much under its capacity due to cuts in gas, all of which is consumed locally. By late 2000s, the gas demand had increased significantly with increased uses of gas in commercial and industrial activities. The major contributors are the transportation and power segments, which converted to gas from oil. In the current scenario, there has to be gas loadshedding to manage the gas supply to all the sectors. Fertiliser, despite having priority allocation of gas (Natural Gas & Management Policy 2005), faced gas curtailment (up to 20%) for the first time in 2010 as gas was diverted to power plants. This limited gas supply to the fertiliser industry threatens the productivity of the largest sector of the Pakistan agriculture. Presently domestically-produced urea prices are ranging between Rs 1600-1700 per bag and in case of import they cost Rs 2400 to 2600 per bag. The figure indicates that a subsidy of about Rs 700 .per bag is being passed by fertiliser sector to the farmers on the principles of open market operations. In the process of domestic produce the government saves investment on foreign exchange and gets tax which it charges to domestic fertiliser industry. The tax paid by only one of the fertiliser producers Fauji Fertiliser Company in year 2012 was Rs 43.189 billion. However, rumours of further fertiliser gas cuts and doing away with the bulk purchase subsidy of approx Rs 220 per bag presently with fertiliser producers is being viewed with concern in the sector. The principle of progress demands that you put more efforts on successful ventures rather than reinforcing the failures. The government failures of not being able to providing basic needs like electricity to its people must be weighed in comparison with the success of fertiliser sector in taking care of the food security for people of Pakistan. The important point which fertiliser producers make is that where gas is a replaceable fuel for IPPs being cheap against petroleum for fertiliser gas is feed which is processed to become urea. The experts consider fertiliser sector an efficient user with least losses and theft, the total gas allocation is just 818 MMCFD but they hardly get 600 MMCFD through MARI and SSGC network . The gas allocated at MARI Network is low MMBTU gas (inferior quality gas) which cannot be used for power generation or domestic consumption; hence this low mmbtu gas field is being utilised by domestic fertiliser plants saving it from being wasted. The fertiliser industry believes that using gas for producing urea is the most efficient and judicious usage as fertiliser sector is not just burning the gas to run the plants alone, it offers maximum value-addition by converting the raw gas into precious urea grains and the country hugely benefits from this substitution. Having discussed above, the fertiliser sector still can play a role to help government come out of the present crisis but it requires mutual understanding of the stakeholders. The progressing nations put emphasis on productivity. In Bangladesh, the priority of power is first industry and then the domestic users. Where there is a need to check wastage in all sectors involved in waste of gas, a serious working will prove that if gas is provided to fertiliser to its capacity it can deliver. The export of fertiliser and its accumulated effects on agri produce will ensure sufficient budget support to the government. A support much beyond the requirement for the purchase of alternate fuel for the IPPs.

Gas provision to fertilizer plants to help save foreign exchange: FMPAC admin December 20, 2013 Agribusiness, Fertilizer, Fertilizer Manufacturers (FMPAC) No Comment

Pakistan

Advisory

Council

Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) said government can save precious foreign exchange on account of urea import if it provides gas to local fertilizer manufacturer plants. Urea import is no permanent solution of rising urea demand by local fertilizer sector and best way to ensure less expensive and timely availability of urea to farmers is to produce it locally. FMPAC spokesman said here on Thursday that few fertilizer plants were completely shutdown due to closure of gas as part of winter gas load management plan by the government but there was no shortage of urea in the market. Spokesman demanded if any vested interest was found involved in hoarding, government should take stern action against them to ensure timely availability of urea to farmers at the prescribed rates. He said local fertilizer plants had been trying to persuade the government to maximise the local urea production to avoid spending hundreds of millions of dollars each year on urea import and if government decided not to import urea, we have ample capacity not only to meet the domestic urea requirements but also to export it. FMPAC sources said our economy is not in a position to drain precious foreign exchange on unnecessary urea import while we can produce it locally at relatively cheaper cost. The devaluation in rupees value and appreciation in dollars value has already made it an expensive affair. Country faced massive loss in urea production due to excessive gas curtailment in the past three years that has cost significantly to the country as GoP had to spend foreign exchange of US $1.5 billion and subsidy of around Rs 80 billion on the imports of 3.4 million tons during 2010-12. Pakistan is self-sufficient in urea production and with consistent gas supply to these plants, government can ensure timely availability of this key farm input to farmers at the cost-effective rates and would also help GoP to reduce its fiscal deficit as well as subsidy spend. Engro Fertilizer IPO exquisite timing November 20, 2013 BR Research 0 Comments

Two years ago, Engro Fertilizer seemed to be in trouble. The quagmire emanating from lack of gas supply to one of its plants was fodder for the companys critics (and there were many) at the time. But, barely two years later Engro Corporations fertiliser business is back to bagging profits and promising better results than ever before. Engro Fertilizer is offering 56 million shares through book building process at the floor price of Rs20 per share, whereas another 28.7 million shares will be offered to the general public through an IPO. Now that Engro enjoys a much improved gas supply and boasts a solid balance sheet-the odds seem to be in favour of subscription of the said IPO-by almost the entire brokerage research community. Engro is working on a long-term permanent solution to fix the gas supply problem. It is already receiving around 30

mmcfd of feedstock gas from Reti Maru and Mari fields, whereas Sui pumps in 10-15 mmcfd. The company requires another 35-40 mmcfd to find a permanent solution, for which it has engaged other fertilizer manufacturers. What is still a mysterious variable is the price of the non-pipeline low btu gas supply. Some circles believe the government would not be willing to offer it at the concessionary rate of $0.7/mmbtu, despite the companys entitlement. The consensus seems to be that this gas would be priced in the range of $5.5-6 per mmbtu, which is higher than the current feedstock price. The primary margins in urea business have always been on the higher side (50-60 percent), and Engro would rather take the feedstock gas, even at a higher rate. What makes the timing of the IPO offering just about perfect is the companys recent restructuring of its highly leveraged balance sheet. Engro has managed to restructure a large part of nearly Rs60 billions debt on the fertilizer book for another two and a half years. Improved cash flow resulting from both plants operating at a reasonably good efficiency, Engro would find it easy to make interest payments along with retiring principal. That said the investors will have to rely solely on capital gains for a while as dividend payments will be restricted under the debt restructuring arrangement. Engro is banking on the seriousness that it finds in this government to address the gas supply issue on permanent basis. We are out of the woods-our cash flows are better and restructuring is done. It appears the government is serious to find a permanent solution. There is at least clarity on the part of government. We are lucky to have fields close to us that are low medium btu quality not affecting SNGPL, SSGC scheme of things, Rohail Mohammed, CEO Engro Fertilizer told BR Research in a soon-to-be published interview. The analyst community believes Engro Fertilizer offers substantial upside from the floor price of Rs20/share, but that is based on the best case scenario where the company receives adequate gas supply. The downside remains the nonavailability of gas to both the plants simultaneously, in which case the IPO is a risky proposition according to a research note by Top line Securities. Should things turn ugly, in an unlikely scenario, Engro has the option to take its plants to countries like Yemen, Nigeria and Mozambique, where gas is available at cheaper rates. One hopes such a situation never emerges, for the sake of the domestic economy. Engro seems to have timed the IPO offering just right but the one variable that will continue to dictate the stock price is the supply of gas to its plants. Distribution of urea through fertilizer companies: MoI&P decides to resist Dar's decision February 13, 2014 MUSHTAQ GHUMMAN 0 Comments

Ministry of Industries and Production (MoI&P) has reportedly decided to resist Finance Minister's decision on the distribution of imported urea through local fertilizer companies, sources close to Secretary MoI&P Shafqat Naghmi told Business Recorder. Presently imported urea is being distributed through National Fertilizer Marketing Limited (NFML) and some senior officials of MoI&P and Lahore-based NFML are accused of corruption. A few junior level officials have been suspended as an eyewash and no action has been taken against any accused despite the passage of several months. Urea distribution mafia is said to have deep roots in the corridors of the MoI&P.

Economic Co-ordination Committee (ECC) of the Cabinet, in one of its meetings presided over by the Finance Minister Ishaq Dar took a serious note of massive corruption in NFML and decided to hand over the imported urea distribution responsibility to the local urea manufacturers. MoI&P argues that under the Rules of Business, 1973, the subject "standardisation and import of urea" has been placed under the Ministry of National Food Security and Research while administrative control of National Fertilizer Corporation (NFC) has been assigned to the MoI&P. The issue of import or any other activity with regard to fertilizer cannot be segregated as NFC under the MoI&P is dealing with all its matters since long. However, there is an initiative from the Finance Ministry to assign the subject of distribution of imported urea to the private fertilizer producers. According to sources, MoI&P is opposed to the proposed initiative on the plea that any such arrangement will raise the specter of a serious conflict of interest. At the same time, it will create a monopolistic situation and will invoke the jurisdiction of Competition Commission of Pakistan (CCP). Moreover, as per distribution of work issued by the Cabinet Division, the MoI&P is responsible for: (i) keeping a watch from a national angle over general price trends and supply position of essential commodities, price and distribution over time that may require to be managed through statutory orders between the provinces; and (ii) administration of the essential commodities, price control, profiteering and hoarding laws including distribution. The sources further stated that fertilisers, especially urea falls within the category of essential commodity. The government regulates the prices of essential commodities through demand/ supply chain management. The import of deficient quantity of urea and its distribution in the market to end users enables the government its supply at an affordable price. Resorting to the proposed arrangement will be detrimental to the interests of farmers in particular and agriculture sector in general. By virtue of the proposed arrangement, the efforts of the government will be seriously hampered to control black marketing of urea in the country. Similarly, the proposed arrangement cannot ensure that the benefits of the subsidy are passed on to the target beneficiaries. Rather, it will be beneficial to the domestic producers, who are already reaping huge benefits in the form of subsidy on gas supplied to them. It will further incite them to lower production and resort to imports. The situation will further worsen as most of the domestic units are highly inefficient in terms of input/output ratio, the sources maintained. "The issue of import or any other activity with regard to fertilizer cannot be segregated as NFC is dealing with all its matters since long, which is working under this Ministry. Therefore, the idea of transfer of FRC to the Ministry of NF&R and import and distribution of fertilizer to the private producers does not seem to be justified," the sources continued. MoI&P has been holding meetings of FRC successfully so far. Further, the Ministry of Planning, Development and Reforms has prepared a comprehensive summary for ECC and forwarded to this Ministry for comments and this Ministry will deal with the same under Rule 8(1) of the Rules of Business, 1973 accordingly. "It is advised that unless a final decision is taken by the Prime Minister under Rule 5(1) of the Rules of Business, 1973, we should pend the proposed exercise by the TCP accordingly. Hence, this Ministry does not support the idea regarding transfer of Fertilizer Review Committee (FRC) to the Ministry of National Food Security & Research as it is contrary to the Rules of Business, 1973," the sources quoted Secretary Industries as saying in his comments. MoI&P maintains that after the 18th amendment in the Constitution, many Ministries/Divisions and its related subjects including the MINFA stand devolved to the provinces and the idea that it should be re-grouped as it were dealt with by the erstwhile MINFA, will be a constitutional violation. "Furthermore, this Ministry had been holding meetings of FRC successfully. Therefore, this Ministry does not support the idea as seems contrary to the Rules of Business, 1973 and also strike the basic provision of the Constitution of Pakistan, 1973," it further stated. Fatima Fertilizer goes strong April 26, 2013 BR Research 0 Comments

Not being connected to the SNGPL network is a blessing for fertilizer manufactures in Pakistan. Fatima Fertilizer, the countrys leading CAN and NP producer and a major urea manufacturer reaped the benefits of comparatively better feedstock gas supply during the 1QCY13. This coupled with other favourable factors helped Fatima Fertilizer quadruple its profits year-on-year. Healthy top line growth came on the back of strong product sales as improved farmers economy and lower urea prices created healthy demand. During the quarter, local urea price stayed close to imported urea, which resulted in significantly higher sales. A very low urea inventory level due to lower imports also ensured decent volumetric sales for local manufacturers. The gross profit margins, however, dwindled significantly mainly on account of sharp reduction in urea prices. Rupee depreciation against the greenback also played a role as Fatimas feedstock gas price is fixed at $0.7/mmbtu. That said, higher volumetric sales more than made up for the loss in gross profit margins. Lower interest rate scenario, repayment of around Rs 6 billion long-term debt and refinancing of Rs10 billion loan at lower mark-up all combined to slash Fatimas finance cost, making a healthy contribution towards its bottom line. Fatimas CAN and NP fertilizer business has been performing exceptionally well. As the market expects an increase in phosphate fertilizer off-take, presence of NP and CAN in Fatimas armory bodes well for its future. What Fatimas strong performance also tells, is that if adequate gas is supplied to fertilizer plants, they can still make healthy profits without raising product prices.