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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

Urea Product
Ammonia
Ammonia Urea Plant Handling &
Plant
Shipment
N
A
T P S
P S U O T
O T R Water W E
W E A E A
E A L R M
R M G
50 Kg Urea
A
Bag
S

Power Plant & Utilities


DAP Manufacturing Process
Phosphoric Acid
Sulphuric Acid
Sand
Furnace Oil

DAP Product
Ammonia
Ammonia DAP Plant Handling &
Plant
Shipment
N
A
T P S
P S U O T
O T R Water W E
W E A E A
E A L R M
R M G
50 Kg DAP
A
Bag
S

Power Plant & Utilities


Excess Demand Situation-Seller is the king
 Capacity 5.8 million tons
 Demand 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:
 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
 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.