Impact of gas price hike on fertilizer companies

Karachi, June 06, 2022: OGRA has recently approved c. 45% increase in gas rates for gas network companies. The Impact of a Rs100/mmbtu hike in feed rates on the largest Urea manufacturer FFC would be Rs 3/share to neutralize which it would require a Rs 118/bag increase in Urea prices.

EFERT, on the other hand would need a lesser price increment of Rs 82/bag. According to JS report, “30% of the Feed gas used by EFERT’s (i.e. 70% of base plant) is charged at Petroleum Policy 2012 rates, hence the lower per bag price increase required.”

On other hand, since EFERT’s price on the said portion is contingent on global Oil prices, it will continue to get impacted in a rising oil price scenario.

In a scenario where feed gas rates increase by Rs100/mmbtu, notice in the table below how EFERT has a relative advantage over its peers.

Fertilizer plants operating on Fertilizer policy 2001, are currently charged Rs302/mmbtu for feedstock and Rs 1023/mmbtu for fuel. Companies like Fatima Fertilizer Company (FATIMA) and Engro Fertilizers Ltd (EFERT) on its Enven plant had a concessionary feed gas rate arrangement fixed at US$0.7/mmbtu which expired on Jul-2021.

FATIMA has been booking gas costs at regular rates since then. Even though EFERT’s concessionary period is under dispute at the moment as the company had faced significant gas outages at the start of the ten-year arrangement, it has also been accruing gas costs at regular rates since September of last year on prudence basis.

Urea, DAP sales likely to decrease in May-2022

As per provisional data, Urea sales in May-2022 are expected to clock in at 412k tons, down by 18% YoY. The import of 100k tons in recent months has provided support to the inventory situation.

With a production assumption of 530k tons for the month, Urea’s closing inventory for May-2022 is expected at 436k tons.

DAP sales in May-2022 are expected to clock in at 92k tons, a decrease of 47% YoY likely due to higher price for the commodity. DAP sales for the 5MCY22 is also down by 16% on a YoY basis.

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