LAHORE - The fertilizer manufactures have agreed to reduce 50kg bag price by RS105. In return, government would also take back gas tariff hike.

As per industry sources, only Fatima group has reduced its fertilizer bag prices by Rs146 to Rs1823/bag, apparently to encourage dealers to clear stocks immediately. It is not unlikely that other players would follow Fatima. However, no other manufacturer has yet reduced fertilizer prices yet.

As per understanding, Govt would be willing to take back feedstock price increase i.e. Rs77/mmbtu, translating into Rs105/bag reduction in urea bag prices. Though the move seems neutral to all players, it would hit margins of FFC and FFBL in 4QCY15 as they have to sell their costly inventories at lower prices, while Fatima and Engro Fertilizers (EnVen) would bear the maximum brunt as their subsidized gas price would not reduce but have to lower the bag price.

According to latest data, Pakistan fertilizer offtakes have witnessed a major dent in Sept 2015 which is linked to the recent increase in bag prices, slow seasonal demand and expected subsidy announcement. In Sept 2015, urea sales are anticipated to have declined by more than 50 percent MoM to 200,000 tons, in which domestic players’ sales are likely to dive 61 percent to 151k tons. However, imported urea (being sold at a subsidized rate by Govt. through NFML) sales have jumped by 52 percent to 49k tons. At present, fertilizer makers are sitting at huge piles of stocks i.e. 0.7m tons, which roughly translate into sales of 6-7 weeks.