Urea inventory may surge to over one million tonnes by year-end
ISLAMABAD: Based on the 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 declining sales volume and highest-ever quarterly production of 1.42 million tonnes by the manufacturers. If the same trend continues, the urea inventory could surge to over 1 million tonnes by the year-end.
Compared to the same period last year, urea sales in April registered a decline of 18pc to 240,000 tonnes. At the same time, the sales fell by 12pc against last month’s figure of 303,000 tonnes. This weakening offtake trend, which is expected to continue for the rest of the year as well, points out to supply chain disruptions in the agricultural sector and a general slowdown in the economy with real GDP growth possibly contracting by 1.3pc.
According to sources, besides the fallout of COVID-19 pandemic, 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, they added, urea consumption is likely to decline by around 10pc 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, sources said, adding that the capacity is sufficient to also build safety stocks for the remaining part of the year, without the need to operate LNG-based plants that rely on huge government subsidies.
According to urea producers, 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.
Although the demand and supply situation is the same in various countries due to lockdown following the COVID-19 pandemic, the sources claim there are still markets available for urea if the export is allowed.
According to Adviser to Prime Minister on Commerce Abdul Razak Dawood, Pakistan’s exports are expected to decline by around $3 billion during the current fiscal year in the aftermath of COVID-19 pandemic.