FERTILIZER SECTOR OF PAKISTANPresented by: Muhammad Zain
Presented to: Invest Capital pvt. Ltd.
PRESENTATION OUTLINE Overview Types of Fertilizer Spot Analysis Budget overview regarding fertilizer Production process of Urea & DAP Supply-Demand Situation Demand Drivers Business Model of Fertilizer Sector Industry Structure Fertilizer Policy 2001 Industry Porter’s Model SWOT Analysis Prospects of the industry Recommendations
OVERVIEW
An Economy Deriving 21.8% of Its Output from Agriculture: As of FY09, agriculture contributed 21.8% to the overall GDP. The demand for fertilizer is directly related to agriculture
growth. Urea is the most used fertilizer, followed by DAP.
Major Crops Production in Year 2008-09:
(mn tons) FY08 FY09 %Change
Wheat 20.9 23.4 11.7%
Rice 5.5 6.9 24.9%
Cotton(bales)
11.6 11.8 1.1%
Sugarcane 63.9 50 (21.7%)
Source: Economic Survey
TYPES OF FERTILIZER
Eight different fertilizer products which falls into three categories.1. Nitrogenous Category:
Urea Calcium Ammonium Nitrate (CAN) Ammonium Sulphate (AS)
2. Phosphatic Category: Di-Ammonium Phosphate (DAP) Triple Super Phosphate (TSP) Single Super Phosphate (SSP) Nitro Phosphate (NP)
3. Potassic Category: Sulphate of Potash (SOP)
SPOT ANALYSIS OF FERTILIZER SECTOR
No. of Fertilizer Manufacturers
8
Capacity Utilization 110%
Industry capacity (urea mnt) 4.3
Industry capacity (DAP mnt) 0.44
Production (1HCY09 mnt) 3.06
Imports (1HCY09 mnt) 0.66
Source of Machinery Italy, England, Denmark, U.S.A, Japan.
Plants in Pipeline 2
BUDGET OVERVIEW REGARDING FERTILIZER
Budgeted Measures Subsidy of PKR 10bn on urea imports Subsidy eliminated on phosphate and potash fertilizer imports Continuation of high support crop prices Feed gas is priced at PKR 94.7/mmbtu a 72% discount to fuel gas
price of PKR 339.4/mmbtu
UREA MANUFACTURING PROCESS:
Ammonia Plant
AmmoniaUrea Plant
Product Handling & Shipment
Urea
Water
Power Plant & Utilities
50 Kg Urea Bag
Carbon Dioxide
POWER
STEAM
POWER
STEAM
NATURALGAS
DAP MANUFACTURING PROCESS
Ammonia Plant
AmmoniaDAP Plant
Product Handling & Shipment
DAP
Water
Power Plant & Utilities
50 Kg DAP Bag
POWER
STEAM
POWER
STEAM
NATURALGAS
Phosphoric AcidSulphuric Acid
SandFurnace Oil
EXCESS DEMAND SITUATION-SELLER IS THE KING
Capacity 5.8 million tons Demand 6.9 million tons
The heavy demand is driven by: Attractive wheat support price of Rs.950 per 40
kg. Decent Cotton & robust Wheat crops. Reduction in Urea & DAP prices.
DEMAND DRIVERS
Low Crop Yields Growing Population Fertilizer Prices Commodity Support Prices Water Availability
According to NationMaster Pakistan ranks 46th in the world in terms of fertilizers consumption,
where its fertilizer usage per hectare is 115 kgs.
PRICE TREND
Source: Industry Reports
INTERNATIONAL VS LOCAL DAP PRICES
Jul-0
7
Jul-0
7
Aug-0
7
Sep-
07
Sep-
07
Oct-0
7
Nov-0
7
Dec-0
7
Dec-0
7
Jan-
08
Feb-
08
Feb-
08
Mar-0
8
Apr-0
8
Apr-0
8
May-0
8
Jun-
08
Jun-
08
Jul-0
8
Aug-0
8
Aug-0
8
Sep-
08
Oct-0
8
Nov-0
8
Nov-0
8
Dec-0
8
Jan-
09
Jan-
09
Feb-
09
Mar-0
9
Mar-0
9
Apr-0
9
May-0
9
May-0
90
500
1000
1500
2000
2500
3000
3500
DAP US Gulf
Local Rs/bag
Source: NFDC
BUSINESS MODEL OF INDUSTRY
There are two types of business model operational in fertilizer sector.
1. Manufacturing Model: Two types of fertilizers are produced in Pakistan which are
Urea & DAP.2. Distribution Model:
Import fertilizer and sell them in association with the local dealer network.
INDUSTRY STRUCTURE:
Eight fertilizer companies. The fertilizer sector in Pakistan is overseen by the Ministry of Food,
Agriculture & LiveStock. Oligopolistic Structure The four largest firm are price setters. However, subsidy on feedstock
to firms prevent these firms from exploiting their marketing power. Share of listed companies in Urea and DAP.
42.03%9.56%
15.39%
Urea Market Share-1HCY09
FFCFFBLECPL
26.46%
58.50%
15.03%
DAP Market Share-1HCY09 Others
FFBLECPL
Source: NFDC
FERTILIZER POLICY 2001
The last fertilizer policy was announced in 2001.
The Policy had been divided into two segments:1. Providing feedstock gas to companies at subsidized
rates.
2. Providing feedstock gas to new plants at a fixed price of US $0.77 per mmbtu for a period of 10 years.
Under the second segment , Engro & Fatima Fertilizer will be rewarded with feedstock gas at US $0.77 per mmbtu for a period of 10 years from the date of commission .
INDUSTRY PORTER’S MODEL
1. Barriers to Entry: High Limited supply of major raw material (Natural Gas) Capital Intensive nature of the industry
2. Bargaining Power of Suppliers: High Suppliers have the bargaining power as there are 4 major
players in the sector and the price is being determined by them.
3. Bargaining Power of Buyers: Low Heavy Demand
4. Threat of Substitutes: Very Low5. Competition: Low
SWOT ANALYSIS
1. STRENGTHS: Capital Intensive nature of the sector. The players operating in this sector are financially strong All the fertilizer plants are producing at more than 100 per cent
installed capacity of utilization GoP supports in the form of subsidy Cheap labor Heavy demand Well established distribution sector An agro based economy
SWOT ANALYSIS
2. WEAKNESSES: Low capacity as compared to demand (demand supply gap) Due to existence of black market and heavy demand farmers
had to pay above the stated price Technological backwardness: Lack of local resources
SWOT ANALYSIS
3. OPPORTUNITIES: As the demand is high compared to supply, fertilizer sector has
an opportunity to expand capacity to fulfill the local demand. Export Introduction of BT crops
SWOT ANALYSIS
4. THREATS: Scarce water resources Load-shedding of gas Hike in fuel prices Taxes Removal of subsidy Rising global prices of fertilizer products Government intervenes to stabilize the prices
PROJECTED EXCESS SUPPLY OF FERTILIZER IN WORLDThe export potential in the fertilizer sector of Pakistan remains limited
ASIA FERTILIZER FORECAST 2007/2008-2011/2012
2007/2008
2008/2009
2009/2010(000 tons)
2010/2011
2011/2012
N supply 72,123 76,317 79,933 85,491 89,850
Total demand 75,255 76,111 77,961 80,413 82,476
Surplus (Deficit)
(2,132) 206 1,972 5,078 7,374
P Supply 13,882 14,744 15,484 16,185 17,964
Total demand 19,209 19,890 20,560 21,168 21,784
Surplus (Deficit)
(5,327) (5,146) (5,076) (4,983) (3,820)
K Supply 5,428 5,524 6,226 6,450 6,530
Total Demand
14,485 15,138 15,794 16,464 17,073
Surplus (Deficit)
(9,057) (9,614) (9,568) (10,014) (10,543)Source: IFA
RECOMMENDATIONS
Strict quality control and monitoring should be there to prevent import of sub-standard products and to curb adulteration and other malpractices prevailing in this sector.
The problem of logistics should be looked into. Transportation through railway (being cheaper) especially during peak seasons should be made available.
There is a need to educate the farmers on balanced fertilizer use so as to neutralize the adverse impacts of constant use of nitrogenous fertilizers.
Top Related