KARACHI:
Pakistan’s largest fertilizer plant, Engro’s EnVen, has restarted production after a 55-day, $50 million cost recovery, coinciding with the ongoing wheat sowing season. The plant, with an installed production capacity of 1.3 million tonnes, is back in operation, but this will not offset the expensive import of urea as the government has approved the import of 100,000 tonnes to maintain stocks during the winter crop production season.
Speaking to The Express Tribune after a corporate briefing held by Engro Corporation, Optimus Capital Management (OCM) analyst Areeba Nasir said there is no connection between EnVen’s return to production and the government’s decision to import urea. Engro Fertilizer is also starting a project to boost natural gas production at the Mari field to maintain the gas pressure necessary for chemical production.
The Pressure Enhancement Program (PEF), estimated at $300 million, aims to ensure sustainable gas supply to Engro Fertiliser, Fatima Fertilizer (FATIMA) and Fauji Fertilizer Company (FFC) over the next five years, Nasir said. EnVen’s long-term overhaul led to lower production and sales for the company in the second quarter of 2024, ending June 30, 2024, thereby reducing its margins.
The turnaround at the EnVen plant was successfully completed at a cost of approximately $50 million, with 30-40% allocated to operating costs and the remainder to capital expenditures (CAPEX). No further upsets are expected for the base plant. The management revealed that the total cost of PEF is $300 million, with Phase-I 85% completed and the rest expected by December 2024. Procurement of compressors for Phase-II is underway, he added.
Due to gas price differences, 60% of the fertilizer sector pays a higher rate of Rs 1,597/MMBTU, while the remaining 40%, including FFC and FATIMA, get gas at a discounted rate. Discussions on gas price unification are ongoing, but no concrete decision has been made.
As of the June-24 quarter, local urea was trading at a 28% discount to international urea. Landing cost of international urea was estimated at Rs 6,298/bag, while local dealer freight rate was Rs 4,549/bag.
In the second quarter of 2024, gross margins fell to 18%, down from 30% in the same quarter last year and down 5 percentage points from the previous quarter. Management attributed the shrinking gross margins primarily to reduced production due to the turnaround of the EnVen plant and lower scrap resulting from poor farm economics. In addition, the decline in DAP prices at the end of the quarter led to lower DAP margins compared to the first quarter of 2024.
Topline Research analyst Tanweer Ahmed noted that Engro Fertilizer’s management sees potential in its premium product zinc urea and plans to invest further in it. The company sold its logistics operations during the year, which had little impact on earnings.
The company’s production in the second quarter of 2024 was 361,000 tons, compared to 539,000 tons in the same quarter of 2023, a decrease of 33% due to the recovery of the EnVen plant. The company’s urea market share fell 8% to 26% in the quarter compared to 36% in the previous quarter. However, DAP’s market share improved by 3% to 17% in Q2 compared to 14% in Q1 2024.
The company posted a consolidated quarterly profit of Rs 1.7 billion (Earnings per share: Rs 1.25) in the second quarter, up 57% year-on-year but down 79% quarter-on-quarter.
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