Tuesday, December 28, 2010

Curtailment of gas supply to affect agriculture

Curtailment of gas supply to affect agriculture

Karachi—Curtailment of gas supplies to fertilizer industry may trigger cut in Urea production informed sources told Pakistan Observer.

Sources said that with winter season in full swing and little improvement in national gas supply shortages, the government has decided that the fertilizer industry also have to face increased gas load shedding. This will be through gas supply cut of 20% as well as 45 days shutdown for plants on the Sui network; increase in gas load shedding on Mari network to 12%.

It is learnt that Engro which is one of the largest Urea producers has hiked urea prices by Rs190/bag (+23%) recently while it has yet to be seen whether other Urea producers also go for a hike in Urea Prices, sources added. It may be noted that the increased gas load shedding for the fertilizer industry in the form of supply cut the rising food inflation which of course should be taken as a challenge by the decision makers with the first national priority of bringing down the food prices to affordable level for the masses already hit by the inflation and fast declining purchase power which also adding to the sufferings of the poor.

According to analysts, despite a likely 5-25% potential decline in urea production, urea producers will be net winners if both price hike and production cut come hand in hand. Sources were of the view that a 45 day shutdown in early January 2011 could interfere with Engro’s expansion timeline but should not be detrimental to earnings as the price hike compensates for the same.

It will not be out of place to mention that the domestic prices correspond to US$237/ton compared the benchmark global prices of US$375-380/ton. The reaction of the government as well as of the farmers’ community over hike in fertilizer price would be a key factor in addressing the issue of food inflation.

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