Amid slowdown in agricultural sector, urea inventory could surge to 1 MT by year-end
ISLAMABAD-Based on latest sales data from the National Fertilizer Development Centre, the urea market seems to be under significant pressure with the accumulation of 850,000 tonnes inventory due to a slowdown in the country’s agricultural sector.
The fertilizer industry had started the year with an opening inventory of 600,000 tonnes, but the inventory has continued to soar on the back of highest-ever quarterly production of 1.42 million tonnes by the manufacturers and declining sales volume. If the same trend continues, the urea inventory could surge to an estimated 1 million tonnes by the year-end.
Compared to the same period last year, the urea sales in April registered a decline of 18 per cent to 240,000 tonnes. At the same time, the sales fell by 12 per cent against last month’s figure of 303,000 tonnes.
This weakening off-take trend, which is expected to continue for rest of the year as well, points out to supply chain disruptions in the agricultural sector and a general slowdown in economy with the real GDP growth possibly contracting by 1.3 per cent.
To support the farmers amid the COVID-19 crisis, the government is expected to announce a mega agriculture package of PKR 63.8 billion for different agriculture related sectors which are hit by the virus outbreak. Besides the fallout of COVID-19 pandemic, the urea demand is expected to be adversely affected by record locust infestation that threatens to destroy cotton, wheat, maize and other crops.
As a result, the urea consumption is likely to decline by around 10 per cent to 5.2 million tonnes. This demand can easily be met by the production capacity of indigenous gas-based urea manufacturers, which is estimated to touch around 5.8 million tonnes in 2020. The capacity is sufficient to also build safety stocks for remaining part of the year, without the need to operate LNG-based plants that rely on huge government subsidies.
Further, in view of the comfortable inventory position, the government may choose to even allow exports of urea in the international arena to earn valuable foreign exchange for the country and improve its trade balance.
According to Abdul Razak Dawood, Adviser to Prime Minister for Commerce, Textile and Investment, Pakistan’s exports are expected to decline by around $3 billion during the current fiscal year in the aftermath of COVID-19 pandemic.