431Engro EXIMP - Eqan Ali Khan - Pakistan Fertilizers

8/3/2019 431Engro EXIMP - Eqan Ali Khan - Pakistan Fertilizers

1/14

FERTILIZERS IN PAKISTANDEMAND, PRODUCTION AND IMPORTS

March 30, 2011 Engro EXIMP

Eqan Ali KhanBusiness HeadFert And Agri Commodities


2/14

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


3/14

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%


4/14

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


5/14

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


6/14

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


7/14

-

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%


8/14

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


9/14

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


10/14

0

200

400

600

800

1000

1200

1400

1600

1800

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 %


11/14

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


12/14

-

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%


13/14

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


14/14

THANK YOU

Documents

431Engro EXIMP - Eqan Ali Khan - Pakistan Fertilizers