431engro eximp - eqan ali khan - pakistan fertilizers
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8/3/2019 431Engro EXIMP - Eqan Ali Khan - Pakistan Fertilizers
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FERTILIZERS IN PAKISTANDEMAND, PRODUCTION AND IMPORTS
March 30, 2011 Engro EXIMP
Eqan Ali KhanBusiness HeadFert And Agri Commodities
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Pakistan An Agrarian Economy
Agriculture is the largest sector of Pakistans economy employing
approx. half of its labor force and producing one quarter of its GDP
There are two principal crop seasons in Pakistan:
"Kharif : AprilSeptember (Rice, Sugarcane, Cotton, Maize)
"Rabi : October March (Wheat, Potato, Maize, Sugarcane, Tobacco)
Major crops, such as, wheat, rice, cotton and sugarcane account
for 82 % of the value added in the major crops:
CropsProduction (Kt) Production CAGR Yield(Kt/Acre) Gross Value Addition
of Major Crops2009/10 2000/01 - 2009/10 2009/10
Wheat 23,864 2.6% 1.07 39%
Cotton 2,159 1.9% 0.28 22%
Rice 6,883 4.2% 0.97 18%
Sugarcane 49,373 1.3% 21.2 10%Source: Economic Survey of Pakistan 2009/10
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Challenges to Agriculture
Source: EconomicSurvey of Pakistan 2009/10
Crop yields in Pakistan lag behind major producing countries potential to improve:
Yield Gap (kg/acre)
Country Wheat Sugarcane Rice (Paddy) Cotton Seed
World 7622 176630 10643 5185
China 11762 180592 16193 9648
India 6921 170126 8324 2979
Pakistan 6054 127190 8694 5054
USA 7454 182200 18950 5558
Brazil 196881 10446 9280
Egypt 299206 24036 5763
Nutrient Actual(Kg/Acre) Recommended(Kg/Acre)
Nitrogen 41 41
Phosphorous 9 20.5
Potassium 0.4 10.3
Imbalanced use of Fertilizers one of the major reasons for low yields:
Nitrogen, 3,277
Phosphates, 763
Potassium, 400
500
1000
1500
2000
25003000
3500
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sales(Kt)
Nutrient Sale in Pakistan
Nitrogen Phosphates Potash
10 year CAGR
Nitrogen: 3.8%Phosphates: 1.3%
Potassium: 5.3%
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Worst Floods in Living Memory
The 2010 floods affected 78 out of 120
districts, displacing around 20 million people
15% of all agricultural land, i.e. 4.5 million
acres, was damaged by floods:
Crops Affected Area (Mn. Acres) Area Affected
Cotton 1.3 17%
Rice 1.4 23%
Sugarcane 0.4 16%
Consumption of N, P and K fertilizers went
down by 10-20% in 2010 due to the floods
Relief and rehabilitation work with the help
of International community:
Fertilizer industry played an active role
Engro contributed over Rs. 136 million under
its social investment commitment in 2010
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Government Policy Related Environment
Fertilizer industry in Pakistan is de-regulated with no permanent subsidy regime -
market prices are linked to International prices except Urea
Subsidy on Feed Gas component on natural gas provided by Government to Ureaproducers expected gradual reduction in extent of subsidy due to domestic gasshortage
Fertilizer industry subjected to gas curtailment (12% 20%) as well as limited outagesduring winters
GST imposed in mid March on agricultural inputs including fertilizers, pesticides andtractors along with 2% value added tax and 15% Flood surcharge (on Income Tax):
Retail prices increased proportionately which could result in demand destruction!
Fertilizer Pre-GST Co. to DealerTransfer Prices (Rs/Ton)
TaxationImpact
Post GST Co. toDealer Transfer
Prices (Rs/Ton)
Urea 20,400 13.2% 23,100
DAP 66,025 19.14% 78,660
MOP 48,200 17.05% 56,420
Source: Engro Analytics
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Farmer Economics and Nutrient Sales
Farmer Economics
PeriodMarket Price (USD/tonne) Crop Economics (USD/Acre)
2009/10 (A) 2010/11 (E) 2011/12 (F) 2009/10 (A) 2010/11 (E) 2011/12 (F)
Wheat 249 263 263 171 194 194
Cotton 526 1053 994 396 713 620
Rice 270 380 351 101 239 189
Sugarcane 58 47 51 1108 540 555
Crop prices in Pakistan linked to International Agri Commodity prices, farmer economics
have remained healthy during the last 2 years
Farmer economics expected to remain healthy during 2010/11 despite increase in input
costs:
Source: Engro Analytics
Healthy farmer economics expected to partly off-set the demand destruction due to
recent increase in taxes
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1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Urea Offtake in Pakistan
Urea Production Urea Imports Urea Offtake
Kt
Urea Demand/Supply
Pakistans urea industry declined by 5% (6.5 Mt in 2009 to 6.12 Mt in 2010) after worst ever floods.
Demand recovery expected in 2011 despite imposition of GST Production impacted by Gas curtailment (5.15 MT in 2010 vs. 5.05MT in 09) despite capacity increase
Urea imports expected to continue in Pakistan due to expected gas shortages (SNGPL-20%, Mari-12%):
0.24 MT imported during 1Q 2011 - further imports unlikely during 1H 2011 due to Engros capacity increase
2H imports likely quantity dependent on magnitude of actual gas shortage
Local urea prices are significantly lower than international market prices partly due to subsidized gasrates recently levied GST to increase local prices by 13.2% due to input GST adjustment
Offtake CAGR
2000-2010: 4.2%
2010-2014: 3.3%
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Urea Market Environment
Engro urea market share is expected to increase to 27% in 2011 with the additional capacity.
Average selling price of domestic Urea during 2010 was Rs. 810/bag, while average landed
cost of imported Urea was Rs. 1,640/bag (C&F USD 340/ton)
By maintaining domestic Urea prices significantly lower than international prices, the industry
gave benefit of Rs. 64 billion in 2010 to the Farmer fraternity
23
1764
Total Benefit to Farmer - Rs. 104 bn
Govt Contribution (Differential of Feed and Fuel gas prices,net of taxes paid)Direct subsidy
Fertilizer producers' contribution
16%
49%
5%
7%
6%
16%
Engro Fertilizers
Fauji Fertilizers
Agri Tech
Dawood Hercules
Reliance GroupNational Fertilizer Marketing Ltd.
27%
45%
5%
6%
9%
9%
Urea Market Share
2010
2011
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Urea Expansion Project
Mechanical completion and trial production EnVen - urea expansion project at Dharki.
The worlds largest single train ammonia-urea plant.
Largest private sector industrial investment in Pakistan USD 1.1 billion.
With the plant operating at full capacity, Pakistan is expected to be self-sufficient in Urea!
EnVenInvestmentUSD 1.1 bn
Capacity: 1.3Million tons
EstimatedForex Saving
USD500Mn/year Total Man
Hours : 50million
TrialProduction:December
29th
Urea plant at Dharki (Pakistan)
Capacity Expansions in 2010/11
Company Name Original Capacity(Million Tons)
Incremental(Million Tons)
Total (MillionTons)
Engro Fertilizers
Ltd.0.975 1.3 2.275
Reliance Group 0.1 0.45 0.55
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0
200
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2000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Phosphates Demand/Supply in Pakistan
Production Imports DAP+MAP+TSP Offtakes
Kt
Phosphates Demand/Supply
Pakistan dependent on imports FFBL only local producer of DAP with 0.65 MT production capacity
Phosphate industry demand reduced from record levels of 1.8MT in 2009 to 1.4 MT in 2010 - severe
floods during Kharif season & rising international prices resulted in demand drop
Phosphate industry in 2011 expected to reduce further to the range of 1.2 1.3 MT in 2011 due to
increase in domestic prices on account of additional taxes levied by GOP
Healthy crop prices are expected to support Phosphate consumption growth in the medium term
however GST impact expected to reduce the rate of growth
Offtake CAGR
1999-2010: 3.1%
2010-2015: 2.8 %
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Phosphate Imports
Imports of Phosphates done by the Private Sector in Pakistan:
Expected imports for 2011 are 0.55 - 0.65 Million tons
Engro is the largest importer of Phosphates during last 5 years:
336 KT of phosphate imports in 2010 with an import share of 55% 100% share of imports during 1Q 2011
21%
30%37%
41%
37%
28% 55%
0
200
400
600
800
1000
1200
1400
1600
2004 2005 2006 2007 2008 2009 2010
Pakistan Phosphate Import Volume (KT) and Share (%) of Key Players
AAA
4B Fertilizers
JBL
Dawood
KJB/Gen
Pac. ChartPak Am
FFC
United Agro
Chawala
Pak Arab
Engro
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20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Potash Consumption in Pakistan
MOP SOP NPK
Tonne
Potash Consumption
Potash in Pakistan applied in Straight Form (MOP/SOP) as well as through NPKs. Engro is the
only producer of NPK in Pakistan with annual capacity of 160 KT/annum Industry declined in 2008/09 in the wake of abnormal increase in International prices
Recovery in 2010 as Potash prices corrected and GOP announced a one time subsidy on Imports
Dip in demand expected in 2011 due to GST which will recover gradually in the coming years
Potash industry in Pakistan has been slow in terms of growth due to following reasons:
Crop prices linked only to quantity and not quality farmer does not see return on investment Lack of a regular subsidy regime to promote Potash
Off-take CAGR
2000-2010: 7.1%
2010-2015: 2.1%
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Engro Corporation Limited
Vision
To be the premier Pakistani enterprise with a global reach, passionately pursuing
value creation for all stake holders
Strategic SectorsEngineering Expertise
Government relations
Ability to raise capital forlarge scale projects
Knowledge of agriculturalsector
Ability to attract top
quality Human Resources
Agri based economy
One of the fast growingdeveloping countries
with a growing middleclass
Growing energy demand-supply gap
Fertilizer
Food and Agri
Business
Power &Infrastructure
Petro Chemicals(niche player)
Project managementexperience
Business sectors were chosen by combining company strengths with country fundamentals
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THANK YOU
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