KARACHI - Though the fertilizer sectors Calendar Year 2009 operational and financial performance turned out to be remarkable as the country achieved 6.4m ton off-take for the first time ever, yet such growth is expected to normalise during Calendar Year 2010. Moreover, add'l capacities during the year would partially bridge the import gap, although excess supply situation may not arise till Calendar Year 2011, as the recent dry spell dampening wheat output in the 'barani areas could hurt fertilizer procurement for the next Kharif season. Such growth itself was beyond ordinary as urea registered an increase of 17 percent year-on-year while DAP offtake grew by 118 percent on YoY basis, and even if DAPs CY08 performance was considered as lacklustre, an impressive growth of 22 percent YoY can still be observed when matched with CY07 offtake. Another encouraging aspect associated with this performance turned out to be fairly balanced use of fertilizer, and the NP ratio for the entire year stood at 3.64x, an improved level when compared to last 5-year average of 7.09x. This remarkable achievement was conformed by impressive DAP offtake of 1.69m tons for CY09 supported further by MAP which posted YoY increase of 140 percent, while its consumption relative to DAP also improved by 10 percent YoY. An integral role was played by the government this time around, in terms of sustaining urea supplies and providing relief through sustained support prices. NFML itself bagged 1.45m tons imported urea offtake this year (22 percent share in total urea supply), bridging the supply shortfall as urea production during CY09 stood at 5.05m tons. On the other hand, CAN offtake went down by 14 percent even though its production went up by 1pc YoY (102 percent utilisation), hinting that higher urea offtake eroded away CANs demand, while its inventory also accumulated to 52k tons, which is 92pc higher than last 4-year average Dec-ending inventory. Meanwhile, CANs weighted average price also increased by 14 percent YoY, while its discount to urea price reduced by 200bps, making it pricier and perceivably less attractive. The accumulation of CANs inventory alongside suppressed demand and higher relative price (to urea) during record performance year does indicate that its economics could face further pressure during CY10, when overall fertilizer demand could remain in corrective mood amid water shortage and costlier inputs. The NP growth remained promising at 57 percent YoY, while production increased by 2 percent YoY, indicating that just as with DAP, higher levels of previously accumulated inventories were retired this year. Meanwhile, its discount to DAP price stayed flat at 34 percent during the year, which also favoured its consumption. All in all, profitability of listed companies went down during CY09 as margins shrank by 200-500bps. Despite this, performance of the sector in terms of volumetric growth led to 29 percent YoY growth in topline. Meanwhile, bottomline registered growth of 11 percent (after adjusting for DAWHs share of ENGROs profit and impairment impact), depicting the enhancement of the sector core income. On the other hand, topline was lower by 5 percent YoY during 4QCY09. The said decline came primarily on the back of 45pc YoY lower topline posted by FFBL during the period. Interest coverage of the sector also improved to 5.40x during CY09 again primarily contributed by FFBL as it retired its obligations due to improved liquidity. Meanwhile, FFC also contributed heavily in pushing bottomline growth up while its contribution in total sector profits stood at 53pc for CY09. Total dividend also increased by 32pc to Rs14.5b backed by strong payouts by FFC and FFBL. Farhan Bashir Khan, a market expert, while citing average rainfall during CY09 that fell by 27 percent YoY against the same 38 percent YoY lower during initial Rabi spell, anticipated that the situation could be more challenging for products other than urea (especially DAP), whose dynamics are more sensitive to price. Meanwhile, upcoming Fatima Fertilizer could also face challenges in terms of marketing its CAN, owing to higher inventory and slower demand witnessed recently, specially when it will be relying heavily on urea and CAN during startup year, he added.