Fertilizer Sector

Diammonium Phosphate (DAP)

Demand drivers

 Government subsidies:

o Government of Pakistan (GoP) has fixed DAP price at Rs. 2,500/bag. In Federal Budget
FY18, GoP maintained subsidy on phosphate fertilizers at same levels as FY17. To recall,
GoP imposed an indirect price cut of Rs. 300/bag. This was implemented through
reduction in fixed sales tax from Rs. 400/bag to Rs. 100/bag. As a result, cash position of
fertilizer manufacturers has improved.

o In October 2017, Punjab government announced end-consumer subsidy of Rs. 150/bag.

Subsidy will be effective for 4Q2017 (Rabi season). Price ceiling of Rs. 2,500/2,600 per
bag for local/imported DAP will remain intact. This has enabled firms to increase prices
by Rs. 60-110/bag to around Rs. 2,570-2,620/bag.

 Product substitution: DAP prices stand at around Rs. 2,500/bag vis-à-vis urea price of Rs.
1,400/bag.

 Wheat: DAP is used in producing wheat crop, demand for which is more inclined towards the last
quarter. During 4Q2017, demand for DAP is therefore expected to pick up.

Supply drivers

 Imports: Historically, extent of reliance on imports for DAP has been higher than nitrogenous
fertilizers. Globally, supply additions have been substantially greater than demand growth. As a
result, DAP prices have come under pressure. Capacity expansions will keep DAP rates subdued
in medium term and prevent prices to levels seen a few years ago (US$ 500/tonne). Decline in
international prices can exert pressure on domestic rates for DAP.

 Phosphate rock: In order to domestically produce 1 ton of DAP; approximately 1.5-2 tons of
phosphate rock needs to be imported. Changes in supply or price of phosphate rock will impact
DAP prices and availability.

 Production capacity: Fauji Fertilizer Bin Qasim Limited (FFBL) is the sole manufacturer of DAP
in the country with a capacity of XX.

Outlook

In 2016, DAP offtake increased by XX% to XXm tons (2015: XXm tons). In 9M2017, DAP offtake was
reported at XXm tons (9M2016: XXm).
DAP fertilizers are formulated in a controlled reaction of phosphoric acid/phosphoric rocks with
ammonia, where the hot slurry is then cooled, granulated and sieved. The key raw material, phosphoric
acid/rocks is primarily imported.

There are two manufacturers of DAP in Pakistan, FFBL and EFERT. Remaining demand is catered
through imports. FFBL has capacity of XXm tons while EFERT’s capacity was reported at XXm tons.

In 2016, total DAP production increased by XX% to XXm tons (2015: XXm tons). In 9M2017, total DAP
production was reported at XXm tons compared to XXm tons in same period last year.

Fundamentals in global DAP markets have weakened in recent years as supply additions have been
substantially more than demand growth, which has put considerable pressure on prices. Going forward,
we still see a significant amount of supply in the pipeline that will likely keep global prices in check,
particularly from: i) Morocco with OCP (government owned phosphate producer) adding 1mn tonnes of
DAP in 2H17 and iii) Saudi Arabia with Maaden (government owned mining company) adding 3mn
tonnes of DAP following the startup of its new plant in July 2017. These supply increases will likely keep
DAP prices muted in the medium term and will prevent prices from rebounding to the levels seen a few
years ago (USD500/tonne).

CAN

NP