Fertilizer sector to play safe in CY22

June 23, 2022 (MLN): The stable urea demand amid the government’s efforts and pro-farmer policies and the attractive payout would make the fertilizer sector a safe play in CY22.

The strong cash flows generated by higher food prices along with the government’s focus to secure food security are expected to keep the fertilizer sector in the limelight which is closely linked to the overall economic growth, specifically the agriculture sector, a research report by Spectrum said.

Due to unbeatable demand from agriculture, the demand for fertilizer in the country remained strong. It is prudent to note that the agriculture sector currently contributes around 22% to total GDP, and during the last 20 years its contribution remained at 19%. In the budget of FY23, the government has set an agriculture growth target of 3.9% mainly due to recovery in cotton and wheat production, ample availability of water, certified seeds, and agriculture credit facilities.

Going by the report, the fertilizer demand would amplify due to the upcoming Rabi season. Moreover, the Agri package announced by the federal government includes agricultural loans, cash support, subsidy of Rs15billion for the fertilizer plant and Rs6bn for imported urea, along with a reduction in electricity tariffs tax exemption will provide support to this sector.

However, due to non-availability of gas, in winter, could hamper the fertilizer production levels.

It is expected that urea offtake would hover around 6.0mn tons by the end of this year, it noted.

To highlight, the government, after consultation with urea manufacturers, decided to reduce urea price to Rs1850/bag, wherein the government would settle the industry’s pending over Rs80bn and reduce their gas tariffs.

Meanwhile, the fertilizer manufacturers have the capacity to pass on any incremental cost to consumers due to higher urea prices in the international market and strong demand.

Whereas this higher international prices encourage smuggling, posing a concern for the sector. The report is of the view that the government has to take serious action to curtail this.

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