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Morning Briefing for December 22, 2011 – Standard Capital

Karachi: Urea price hike on the cards

The price of Engro urea is being increased by around Rs 100 per bag to Rs 1,580 per 50 kilogramme (kg) bag. According to sources, the new price would be effective from today and differential would be collected on all the pending orders as well.

According to Standard Capital, a notification of Engro Fertilizer, retail price for the farmer would now be close to Rs 1600 per 50 kg bag. This is primarily due to non‐availability of gas to Engro New plant (Enven) since last 13 days despite governments’ commitment to provide gas in December to meet higher demand in peak Rabi season, a spokesman of the Company said. Standard Capital expects other fertilizer producers to also increase the price in next few days in line with past practice, analysts opined.

In case government changes gas load management policy by supplying more gas to textile or fails to divert SSGC’s additional 100mmcfd gas from Tando Allahyar to SNGPL network, then there are chances of higher gas curtailment to Engro new plant. In this case there would be another round of increase in urea prices by Engro to offset production losses, as current urea prices were still 35 percent lower than international prices. However, if gas curtailment increases to 65 percent from current level of 55 percent and no change in urea prices, Engro’s 2012 EPS would reduce to Rs 20.4.

Engro reversed two price hikes but it was due to government’s assurance of adequate gas supply, but would now increase if gas was not supplied. One risk has emerged over the past few months was government’s intention to impose gas cess on various sectors including fertilizer to check rising gas demand.

Engro to hike urea price by Rs100/bag FFC, FFBL plants shut down
Engro Fertilizer has reversed its previous decision by raising urea prices by Rs100 (inclusive of sales tax) per 50 kg bag to Rs1580 per bag effective from December 22’11, as per industry sources.

This is mainly caused by non‐availability of gas to Engro’ new plant (EnVen) from the start of this month in spite of government’s promises to provide gas in the month of December to meet higher demand in peak Rabi season. As far as earnings impact on the fertilizer companies is concerned, The Financial Daily analyst estimates that Rs100/bag increase would yield an incremental CY12 EPS impact of Rs3.5/share on Engro, Rs2.90/share on FFC and Rs0.76/share on FFBL.

However, industry experts believe that Engro would further increase in its urea price by Rs230/bag on account of GIDC, as government has decided to increase fertilizer feedstock gas prices by 193 per cent to Rs299/mmbtu from Rs102/mmbtu, effective from 1st January 2012.On the other hand, Fauji Fertilizer Goth Machi Plant II having annual capacity of 635,000 tonne, has been shut down from December 20, due to technical glitch, as per sources.

The estimated maintenance time stands at 8 days. In addition, Fauji Fertilizer bin Qasim urea plant would be shutting down from today (Thursday) due to winter gas curtailment. It is expected that plant would be in operation at the end of February 2012 (FD)

SBP governor stresses need for development of debt market
Size of private debt in Pakistan remained around Rs 74bn (0.5 percent of GDP) Compared to outstanding domestic government debt of Rs 4.64 trillion (31.4 percent of GDP)Pakistan’s economy and the financial sector are now at a stage where they can support and benefit from a vibrant and efficient debt market.

The size of private debt, or Term Finance Certificates (TFCs) in Pakistan, remained around Rs 74 billion (0.5 percent of GDP), which is paltry as compared to the outstanding domestic government debt of Rs 4.64 trillion (31.4 percent of GDP). There is clearly under exploited capacity available to support economic growth. This was stated by governor, State Bank of Pakistan while delivering his keynote address on the ‘Role of Financial Institutions and Capital Markets in Pakistan’s Economy’ at PAF Air War College in Karachi on Wednesday.

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