FERTILIZER SECTOR OF PAKISTAN

Presented By: Fakhar Ud Din Presented To: Prof. Dr. Qais Aslam

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 Porters 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) Wheat Rice Cotton(bales) Sugarcane FY08 20.9 5.5 11.6 63.9 FY09 23.4 6.9 11.8 50 %Change 11.7% 24.9% 1.1% (21.7%)

Source: Economic Survey

TYPES OF FERTILIZER
1.

2.

3.

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

SPOT ANALYSIS OF FERTILIZER SECTOR

No. of Fertilizer Manufacturers Capacity Utilization Industry capacity (urea mnt) Industry capacity (DAP mnt) Production (1HCY09 mnt) Imports (1HCY09 mnt) Source of Machinery Plants in Pipeline 8 110% 4.3 0.44 3.06 0.66 Italy, England, Denmark, U.S.A, Japan. 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:

Carbon Dioxide

Ammonia Plant N A T U R A L G A S

Ammonia

Urea Plant

Urea

Product Handling & Shipment

P O W E R

S T E A M

Water

P O W E R

S T E A M 50 Kg Urea Bag

Power Plant & Utilities

DAP MANUFACTURING PROCESS

Phosphoric Acid Sulphuric Acid Sand Furnace Oil Ammonia DAP
Product Handling & Shipment

Ammonia Plant N A T U R A L G A S

DAP Plant

P O W E R

S T E A M

Water

P O W E R

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

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

DAP US Gulf
3500

Local Rs/bag

3000

2500

2000

1500

1000

500

Source: NFDC

BUSINESS MODEL OF INDUSTRY

1.

2.

There are two types of business model operational in fertilizer sector. Manufacturing Model: Two types of fertilizers are produced in Pakistan which are Urea & DAP. 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.
Urea Market Share1HCY09
15.39%
FFC 9.56% 42.03% FFBL ECPL 58.50%

DAP Market Share1HCY09

15.03% 26.46% Others FFBL ECPL

Source: NFDC

FERTILIZER POLICY 2001

The last fertilizer policy was announced in 2001. Providing feedstock gas to companies at subsidized rates. 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 .

The Policy had been divided into two segments:

1. 2.

INDUSTRY PORTERS MODEL

1.

Barriers to Entry: High

Limited supply of major raw material (Natural Gas) Capital Intensive nature of the industry
Suppliers have the bargaining power as there are 4 major players in the sector and the price is being determined by them. Heavy Demand

2.

Bargaining Power of Suppliers: High

3.

Bargaining Power of Buyers: Low

4.
5.

Threat of Substitutes: Very Low 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

2007/2008 2008/2009 2009/2010 (000 tons) 2010/2011 2011/2012

N supply
Total demand Surplus (Deficit) P Supply Total demand Surplus (Deficit) K Supply Total Demand Surplus (Deficit)

72,123
75,255 (2,132) 13,882 19,209 (5,327) 5,428 14,485 (9,057)

76,317
76,111 206 14,744 19,890 (5,146) 5,524 15,138 (9,614)

79,933
77,961 1,972 15,484 20,560 (5,076) 6,226 15,794 (9,568)

85,491
80,413 5,078 16,185 21,168 (4,983) 6,450 16,464 (10,014)

89,850
82,476 7,374 17,964 21,784 (3,820) 6,530 17,073 (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.