Fertilizer Sector Of Pakistan

Fertilizer Sector Of Pakistan

Presented 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:

Source: Economic Survey

Types Of Fertilizer Eight different fertilizer products which falls into three categories. 2. Nitrogenous Category:  Urea  Calcium Ammonium Nitrate (CAN)  Ammonium Sulphate (AS) 4. Phosphatic Category:  Di-Ammonium Phosphate (DAP)  Triple Super Phosphate (TSP)  Single Super Phosphate (SSP)  Nitro Phosphate (NP) 6. Potassic Category:  Sulphate of Potash (SOP) 

SPOT Analysis Of Fertilizer Sector

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: Carbon Dioxide Ammonia Plant

P O W E R

S T E A M

N A T U R A L G A S

Ammonia

Water

Urea Plant

P O W E R

Urea

Product Handling & Shipment

S T E A M 50 Kg Urea Bag

Power Plant & Utilities

DAP Manufacturing Process

Phosphoric Acid Sulphuric Acid Sand Furnace Oil

Ammonia Plant

P O W E R

S T E A M

N A T U R A L G A S

Ammonia

Water

DAP Plant

P O W E R

DAP

Product Handling & Shipment

S T E A M 50 Kg DAP Bag

Power Plant & Utilities

Excess Demand Situation-Seller is the king  

Capacity Demand

5.8 million tons 6.9 million tons

q 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

Source: NFDC

Business Model Of Industry There are two types of business model operational in fertilizer sector. 2. Manufacturing Model:  Two types of fertilizers are produced in Pakistan which are Urea & DAP. 4. Distribution Model:  Import fertilizer and sell them in association with the local dealer network. 

Industry Structure:  

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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.

Source: NFDC

Fertilizer Policy 2001 

The last fertilizer policy was announced in 2001.

The Policy had been divided into two segments: 3. Providing feedstock gas to companies at subsidized rates. 4. 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

3. 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.

5. Bargaining Power of Buyers: Low 

Heavy Demand

7. Threat of Substitutes: Very Low 8. 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 World The export potential in the fertilizer sector of Pakistan remains limited

Asia Fertilizer Forecast 2007/2008-2011/2012

Source: IFA

Recommendations 

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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.