Karachi, August 23, 2021 (PPI-OT): Pakistan Fertilizer: Supply disruptions to drive fertilizer prices higher

Fertilizer prices seem to be on an uptrend, with our channel checks suggesting another PkR50/bag hike w.e.f 06th Aug’21 in urea prices to PkR1,725/bag announced by Fauji Fertilizer Company Ltd (FFC).

The recent supply side disruptions as key Chinese manufacturers temporarily suspend fertilizer exports to assure supplies for domestic market since 01st Aug’21 may keep fertilizer prices on an uptrend.

We therefore incorporate urea prices at PkR1,725/bag for 2HCY21 and CY22F, maintaining our longer term assumption of PkR1,675/bag. We also revise DAP prices to PkR5,800/bag for 2HCY21.

Our CY21/22F estimates for fertilizer companies under coverage are thus up by 4-6%. An increase in feed/fuel gas prices by 25/15% would translate into impact of PkR120/bag for FFC. GoP’s accommodative stance with respect to gas price hike amid periodic resurgence of COVID’19 waves keeps us bullish on the sector in near term.

EFERT offers highest D/Y in the sector where CY22/23F D/Y stands at 14.2/14.2% at last close, despite incorporating non-concessionary rates 3QCY21 onwards. For FFBL, strong profitability in 2HCY21 as well as one-time impact of conclusion of sell-off transaction of wind power projects will trigger price performance.