January 20, 2020 (MLN): In order to provide relief to the farmers, the Economic Coordination Committee (ECC), in its meeting held earlier today, has decided to waive off GIDC of PKR 400/ bag.
At present, GIDC on feed-gas stands at PKR 300/mmbtu while the GIDC on fuel-gas stands at PKR 150/mmbtu. By removing GIDC on both would lower urea price by 400/bag.
As per research report by Topline Securities, the industry may try to reduce urea prices by Rs 350/ bag, to recoup the Rs 50/bag hit it took at the time of GIDC imposition.
With regards to major industry players, Fauji Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim Limited (FFBL) have been ensuing GIDC in their costs. While Engro Fertilizers (EFERT) have been accruing it only its old plant and not its new plant due to the concessionary gas prices, whereas, Fatima Fertilizer (FATIMA) has not been accruing it at all, again due to the concessionary gas pricing.
Keeping in view the aforesaid facts, the removal of GIDC would remain neutral in case of (FFC) while (FFBL) would be the major beneficiary as the company will benefit from lower production cost without a proportionate reduction in DAP prices.
Going forward, if the complete reduction in GIDC is passed through as decline in ureas price will be offset by lower gas pricing and lower urea price can potentially boost demand, the report added.
On the other hand, the impact of this development would be negative in the case of EFERT and FATIMA due to concessionary gas pricing. Therefore, the removal would prove damaging to their profitability.
