In the third quarter of CY24, Pakistan’s fertilizer sector has shown a mixed performance due to various external pressures, notably the rising gas prices and fluctuating demand. As per a recent report by Ismail Iqbal Securities, the industry has been dealing with persistent price disparities in gas, affecting the overall performance of key players such as EFERT, FFBL, and FFC.
Urea Offtakes Decline: A Sign of Struggling Farm Income
A notable trend in 3QCY24 was the sharp decline in urea offtakes, which dropped by 17% year-on-year (YoY). This decrease can largely be attributed to reduced farm income as wheat and cotton prices plummeted during the same period. However, the industry saw a 54% quarter-on-quarter (QoQ) recovery, primarily due to EFERT’s Enven plant resuming operations after a downtime.
A similar pattern was observed in the DAP segment, where offtakes dropped by 18% YoY to a total of 394k tons. Farmers, struggling with reduced income, turned to cheaper alternatives, further impacting premium fertilizer brands like EFERT.
“The urea market has been notably tough this quarter as farmers opt for lower-cost options,” says Mohammad Bilal Ejaz, an analyst at Ismail Iqbal Securities.
Gas Price Hikes: A Challenge for Fertilizer Manufacturers
The primary factor weighing on fertilizer companies this quarter has been the significant price disparities in gas across the Mari and SNGP/SSGC networks. Since the initial price hike in November 2023, fertilizer companies have had to bear higher rates, particularly those operating on the Mari network. The effects of these increases have yet to fully play out, as clarity on the new rates remains pending.
EFERT, for instance, has been forced to sell its products at a premium due to the higher feedstock gas rates under the PP12 pricing structure. This has negatively impacted its sales, as competitors with cheaper products have drawn away cost-conscious customers.
Company Highlights: Mixed Earnings for Key Players
- EFERT
EFERT experienced a 21% QoQ drop in earnings due to lower sales, largely driven by its higher bag prices relative to competitors. The company is expected to post a profit after tax (PAT) of PKR 7.5 billion, translating to an earnings per share (EPS) of PKR 5.7. Despite the dip in earnings, EFERT is expected to announce a dividend per share (DPS) of PKR 6.0. - FFBL
FFBL, on the other hand, had a more positive outlook in 3QCY24. The company’s earnings are forecasted to increase by 4% QoQ, thanks to a rise in both urea and DAP offtakes. With international prices for DAP and phosphoric acid remaining stable, FFBL has been able to maintain healthy margins. The company is expected to post an EPS of PKR 4.26, although no dividend is anticipated this quarter. - FFC
FFC is expected to report a PAT of PKR 13.8 billion, a substantial 51% YoY growth. Benefiting from lower gas prices, the company has managed to achieve gross margins of around 51%. FFC is expected to declare a final cash dividend of PKR 9.0 per share.
Looking Ahead: A Complex Market for Fertilizers
With gas price challenges and fluctuating demand due to variable farm incomes, the fertilizer sector in Pakistan continues to face uncertainty. The performance of key players like EFERT, FFBL, and FFC in the upcoming quarters will likely depend on how the gas price disparities evolve and how international markets influence the prices of key agricultural commodities.