The fertilizer industry Roydon D'mello

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  • Deregulation unable to offset the loss…….. Urea imported in high amountsPak china bought by Schon grupPak saudi – 2nd plant to be privatized
  • Additional 3.5 million people to feed every yrIncreased productivity – less poverty
  • Incorporated after demerger of fertiolizer division from engro chemical
  • Joint venture produces phosphoric acid
  • Graph shows how sales increased over the last 2 decadesArea cultivated didn’t increase as muchFertilizer use increased food production, thus more fertilizer used. Dip in 2008 coz of recessionDip in 2010 coz of floodFlood dip expected to rise – happened a few years before as wellIncrease so much because farmers put extra fert.. More than they needPicture shows recommended and actual usagePhosphorus ka usage is more than recommendedThis harms soil
  • Imports of DAP fluctuatingWent down in 2008 coz of recessionDown in 2010 coz of floodsEngro imports and sells DAPFfbl doesn’t import coz produces locallyImport volume overall reducing coz of high international pricesWhen prices rise, farmers switch to urea instead of DAP
  • International n local prices of urea risingLocal prices rose coz of gas curtailment issues20% increase betwenndec 2010 n march 2011During this time international urea prices fell. They started rising in April 2011.
  • Increase in local DAP prices more than increase in internationalLocal – 30% between dec 2010 n march 2011International – rose steadily by 10% in 1st quarter of 2011
  • Shows crop wise consumption of fertilizersOverall consumption has increased.Inc population – increasing food demand – more crops – more fertilizersWheat is most widely cultivated, thus most consumption in wheat
  • Local production unable to meet demand….. Lots of urea import in 2009Between 2000 – 2003, hardly imported urea
  • Gas curtailment – low production – increased urea importsEngro’s plant not working to full capacity otherwise wudve been self sufficient in urea
  • FFBL only producer of DAP, thus increased imports
  • 2008-09 FALL – HIGH INTERNATIONAL PRICES
  • The fertilizer industry Roydon D'mello

    1. 1. THE FERTILIZER INDUSTRY Roydon D’mello
    2. 2. AGENDA• Overview• History• Importance• Types of Fertilizers• Key Industry Players• Working Units• Raw Materials & Associated Problems
    3. 3. AGENDA• Government Policies• Industry Trends• Demand Supply Analysis• Imports• Porter’s Five Forces Model• Issues• Solutions
    4. 4. OVERVIEW• Semi industrialized/agrarian economy.• 55% of labour force in agriculture• Manufacturing based on textile and sugar.• Soil deficient in nutrients.• New methods and farming technology.• Use of fertilizers for better results
    5. 5. HISTORY• No fertilizer plants at inception• 10 plants operating, 6 private & 4 public.• Foundation laid in Green Revolution• 1958 – first public fertilizer plant set up by NFC• 1965 – first private plant at Dharki by Exxon• Fertilizer use increased in 1966-67 after introduction of HYV seeds
    6. 6. • Sector highly regulated till 1986, government fixed prices.• Stifled the private sector – huge demand supply gap• Urea prices deregulated in 1986• 1991 – urea imports had risen to 27% of installed capacity• 1991 – fertilizer policy gave incentives for new plants and expansions
    7. 7. • Pak China fertilizer privatized in 1992• Pak Saudi Fertilizer purchased by Fauji Fertilizer in 2001• Subsidies on nitrogenous fertilizers abolished in 1986• Subsidies on phosphates abolished in 1993• Subsidies on potash abolished in 1997• Provincial quotas abolished & 15% sales tax implemented in 2001• Except urea, farmers had to pay international prices of all imported products
    8. 8. IMPORTANCE• Agriculture & livestock – 22% of GDP• Population growth rate – 2.2%, more people to feed• Proper fertilizer use increases yield & productivity• 1989-90 – 101.3% increase in fertilizer usage led to 57.4% increase in food production
    9. 9. TYPES OF FERTILIZERSThree main categories:• Nitrogenous Fertilizers• Phosphate Fertilizers• Potassic Fertilizers
    10. 10. NITROGENOUS FERTILIZERS• Urea is the main nitrogenous fertilizer used• Domestic production in 2009-10 – 5,154,883 tonnes• Ammonium sulphate & calcium ammonium nitrate also produced.• Can and urea production together accounted for 82% of domestic production in FY2009-10
    11. 11. PHOSPHATIC FERTILIZER• Includes Di-ammonium phosphate, Triple super phosphate, Single super phosphate & Nitro phosphate• DAP production started in 1999 by Fauji Fertilizer• 2009-10 DAP production – 65,889 tonnes• 17% increase since previous year
    12. 12. • Phosphates help plant use water effectively and help in seed germination• Phosphate production is 16% of total domestic production• DAP helps counter acidic effect of urea & maintain soil fertility
    13. 13. POTASSIC FERTILIZER• Production & usage negligible• Improve plant durability by providing protection against germs & diseases
    14. 14. Production (tonnes) 1% 2% 5% 9%0% Urea 5% CAN AS DAP NP SSP NPKs 78%
    15. 15. KEY INDUSTRY PLAYERS
    16. 16. • Engro Fertilizers• Fauji Fertilizer Company• Fauji Fertilizer Bin Qasim Ltd• Dawood Hercules Chemicals Ltd
    17. 17. ENGRO FERTILIZERS• Wholly owned subsidiary of Engro Corporation• Incorporated in June 2009• Urea manufacturing capacity expanded with ENVEN 1.3 – went into production in November 2010• Urea market share 23%, phosphate market share 29% in Sept. 2011
    18. 18. • Market share expected to increase• Biggest fertilizer manufacturing facility in the world• Expected production – 1.3 million tonnes of urea
    19. 19. FAUJI FERTILIZER COMPANY• Incorporated in 1978• Joint venture between Fauji Foundation & Haldor Topsoe A/S of Denmark• Started with share capital of Rs 813.9 million• Today share capital is Rs. 8.48 billion• Stakes in FFBL, FCCL & FFCEL
    20. 20. • Commercial production in 1982• A second plant set up in 1993• Major shareholder in the DAP manufacturing complex
    21. 21. FAUJI FERTILIZER BIN QASIM LIMITED• Started in 1993 as FFC-Jordan Fertilizer Company• DAP plant suspended in 2001 due to loss of Rs 6.5 billion• Resumed in September 2003• Renamed in 2003 after Jordan Phosphate Mines Co sold off shares
    22. 22. • Phosphoric supply agreement terminated• Only company to produce DAP & Granular Urea• 51% market share in urea and 65% market share in phosphates• Pakistan Maroc Phosphore S.A. established in Morocco• Joint venture between OCP and Fauji Group• Production capacity – 375000MT• Ensure raw material supply
    23. 23. DAWOOD HERCULES CHEMICALS LIMITED• Incorporated in 1968 – public company• Joint venture between Dawood Group & Hercules Inc. USA• First manufacturer to obtain ISO-9000:2000• 5% market share in urea• Dawood Hercules Fertilizers incorporated in 2010 after a demerger
    24. 24. MANUFACTURING PROCESS• AMMONIA SYNTHESIS• UREA PRODUCTION
    25. 25. AMMONIA SYNTHESIS DESULPHURISATION COMPRESSOR PRIMARY REFORMER AMMONIA SYNTHESISSECONDARY REFORMER AMMONIA HT SHIFT LT SHIFT CO2 WASH METHANATION
    26. 26. UREA PRODUCTION CO2 NH3 UREA REACTION STRIPPING DECOMPOSITION EVAPORATION PRILLING/GRANULATION UREA
    27. 27. WORKING UNITS• 4 public sector, 6 private sector unitsPublic sector units:• Hazara Phosphate Fertilizer (Pvt) Limited,• Lyallpur Chemical & Fertilizer Limited,• Pak Arab fertilizer Limited and• Pak American Fertilizers Limited.
    28. 28. Private sector units:• Engro Fertilizers Limited,• Fauji Fertilizer Company Limited,• Pak China Fertilizer,• Pak Saudi and• Fauji Fertilizer Bin Qasim Company Limited.• Dawood Hercules Fertilizers Limited
    29. 29. • Total urea sales in Sept. 2011 – 4.24 million tonnes.• 3.72 million tonnes produced locally• DAP sales – 668kT• 429 kT produced locally
    30. 30. RAW MATERIALS & ASSOCIATED PROBLEMS• Large amount of energy required for ammonia synthesis• 80% of energy consumption – synthesis of ammonia• Natural gas used since discovery at Sui and Mari
    31. 31. • Gas sold at subsidized rates – 50% subsidy for urea production• Reduced gas supplies due to gas shortage• Increased prices of urea
    32. 32. NATIONAL FERTILIZER CORPORATION• Provides fertilizers and agronomic services• Provides CAN, urea, NP, SSP, zinc sulphate• Incorporated in 1972 at Lahore• Successor of PIDC• Launched 6 new companies in 1974
    33. 33. • Built storage locations for fertilizers• Helped reduce pressure on transport system• Ensure constant supply of fertilizer• Technical training institutes in Multan, Punjab and Haripur, KPK
    34. 34. GOVERNMENT POLICIES
    35. 35. FERTILIZER POLICY 2001• Announced on July 1, 2001• Withdrawal of prevalent subsidies• 50% increase in gas tariff for next five years• Provided new investors a gas price that enabled them to compete in the domestic market• A discount of 10% was allowed to facilitate new investment.
    36. 36. • Rock phosphate and phosphoric acid importable by manufacturers of fertilizer shall remain importable free of custom duty.• All raw materials required for NPK production are allowed to be imported free of duties & taxes• Government intervention in price control may help boost availability of fertilizers to the farmers.
    37. 37. NATIONAL GAS ALLOCATION & MANAGEMENT POLICY 2005• Limited gas deposits• Govt. focusing on enhancing gas supply – exploring new sites & importing gas• Gas supply targets set by federal government• First priority given to domestic and commercial services• In the independent network fertilizer plants get most priority
    38. 38. • Policy implemented by a committee that will review the allocation• Applicable to all consumers connected to the gas and independent network• OGRA will make amendments where necessary
    39. 39. INDUSTRY TRENDS
    40. 40. UREA PRICES – INTERNATIONAL & LOCAL
    41. 41. DAP PRICES – INTERNATIONAL & LOCAL
    42. 42. DEMAND – SUPPLY ANALYSIS
    43. 43. FACTORS AFFECTING DEMAND• High dependency on agriculture• Soil deficient in nutrients• Animal manure cheap substitute, it doesn’t provide necessary nutrients• 2.2% population growth rate
    44. 44. • Recent floods reduced short term demand• Over usage as a result of gas subsidy, low market price of urea and uneducated farmers• Demanded all year round for both Rabi and Kharif crops
    45. 45. CROP-WISE CONSUMPTION250020001500 Wheat Rice Maize Cotton1000 Sugarcane Others 500 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
    46. 46. FACTORS AFFECTING SUPPLY• Price of inputs• Urea raw material available locally, less costly production• DAP raw material imported, more costly production
    47. 47. • Gas curtailment – local production suffering• Only one local DAP producing facility• Most of the DAP requirement met through imports
    48. 48. IMPORTS
    49. 49. Urea Import (000 Tonnes)18001600140012001000 Urea Import 800 600 400 200 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
    50. 50. DAP Imports (000 Tonnes)140012001000 800 DAP Imports 600 400 200 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
    51. 51. PORTER’S FIVE FORCES MODEL
    52. 52. RIVALRY• High fixed costs• Negligible perceived differences between the brands• Prices fixed – price competition impossible• FFBL has sole DAP production facility• Engro imports and sells DAP• A little competition between these two
    53. 53. THREAT OF NEW ENTRANTS• High barriers to entry• Difficult to acquire government approval for gas allocation• Production of DAP very costly – requires imported raw materials• High infrastructure costs• Existing brand names – difficult for new entrants to survive
    54. 54. POWER OF SUPPLIERS• Gas subsidies given by government• Long term agreements• Firms can’t influence market prices• Hence supplier power is very low
    55. 55. THREAT OF SUBSTITUTES• No proper substitutes• Natural fertilizers can be used but not as effective• Animal manure not suitable for commercial production
    56. 56. BARGAINING POWER OF BUYERS• No alternate for urea – have to buy it irrespective of prices• Urea used as an alternate for DAP• When DAP prices increase, urea sales increase and DAP sales fall
    57. 57. ISSUES
    58. 58. • Reduction in gas supply• 46% production capacity based on SUI – 20% gas curtailment• Mari based plants facing 12% curtailment• Production expected to fall by 0.9 million tons• Urea prices increase – Rs 750/bag to Rs 1800/bag• Increase in urea imports• TCP approved import of 0.7 million tonnes of urea
    59. 59. • Only FFBL produces DAP locally• No incentives given for local DAP production• DAP imports increase import bills• International DAP prices went up by 4%, reduced profit margins• Uneducated farmers – unbalanced use of fertilizers• Extra demand – increase imports• Retailers sell at prices higher than those agreed upon by companies
    60. 60. SOLUTIONS
    61. 61. • Tackle the gas problem• Explore reserves at Badin, Murree, Kohlu & Sanghar• Use substitutes for domestic purposes – more gas for fertilizer• Use bio gas for domestic use and vehicle fuel• Educate farmers – balanced use of fertilizers
    62. 62. • Provide incentives for local DAP production• This will help fill the DAP demand – supply gap• Print prices of fertilizer on the bags – reduce black marketing and overcharging of prices
    63. 63. THANK YOU

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