Fauji Fertilizer Company (FFC) is expected to record a decline in urea offtakes in the third quarter of calendar year 2026 as restricted supplies of re-gasified liquefied natural gas (RLNG) and subdued inventory levels constrain granular urea production. Despite the pressure on FFC’s volumes, Pakistan’s fertilizer sector is projected to deliver higher overall earnings, supported by stronger fertilizer prices and improved nitrogenous fertilizer sales.
FFC’s urea offtakes are forecast to decline approximately 9% year-on-year during the quarter. However, improved pricing in the domestic market is expected to provide some relief to margins and partially offset pressures in other product segments.
RLNG Constraints Limit FFC Urea Production
Limited RLNG availability and subdued inventory levels have restricted granular urea production at FFC, weighing on the company’s expected sales volumes.
The anticipated decline highlights the fertilizer industry’s continued exposure to gas availability and supply disruptions. Although higher local urea prices are expected to support product margins, sustained production will depend on the consistency of gas supplies.
FFC’s gross margin is projected at approximately 30% for the quarter, reflecting the combined impact of stronger urea pricing and weaker profitability in the phosphate segment.
DAP Margins Face Pressure From Rising Phosphoric Acid Prices
FFC’s diammonium phosphate (DAP) segment is expected to face continued margin pressure as phosphoric acid prices rise faster than international DAP prices.
The company’s DAP margins are estimated at approximately $127 per ton, reflecting the unfavourable movement in input and output prices.
Imported DAP volumes are projected at around 12,000 tons, compared with no sales in the corresponding period last year. Meanwhile, locally manufactured DAP volumes are expected to decline approximately 8% year-on-year amid higher prices.
The divergence between urea and phosphate performance illustrates the challenges facing fertilizer producers as input costs and selling prices move at different rates.
Fertilizer Sector Profits Expected to Rise 5%
Pakistan’s fertilizer sector is projected to post combined net profit of PKR 39 billion in the third quarter of 2026, representing a 5% increase year-on-year.
Higher fertilizer prices and an estimated 2.6% increase in nitrogenous fertilizer offtakes are expected to drive earnings growth. In contrast, phosphatic fertilizer offtakes are forecast to decline around 25%, with phosphoric acid prices hovering near $1,700 per ton.
Sector-wide gross margins are projected at 34.7%, up 2.3 percentage points from the corresponding period last year.
Urea and calcium ammonium nitrate (CAN) prices increased approximately 6% and 7%, respectively, while gas costs remained largely stable. DAP and nitrophosphate (NP) prices rose around 22% and 18%, respectively, lagging behind the increase in phosphoric acid prices.
As a result, stronger nitrogenous fertilizer margins are expected to outweigh the compression in phosphate profitability.
Higher Financing and Distribution Costs Weigh on Earnings
Despite the projected increase in sector profits, higher operating and financing expenses are expected to limit the improvement in net margins.
Finance costs are forecast to rise 46%, primarily due to borrowings associated with the PEF and capital expenditure requirements. Distribution expenses are expected to increase 23%, partly reflecting higher diesel prices.
Other income is projected to fall approximately 43%, driven by anticipated portfolio losses at one sector participant.
Consequently, the sector’s net margin is forecast at 14.3%, down 0.8 percentage points, despite the expected improvement in gross profitability.
EFERT and FATIMA Show Diverging Earnings Trends
Company-level performance is expected to vary, reflecting differences in product mix, sales volumes and operating margins.
EFERT Earnings Supported by Urea Volumes
Engro Fertilizers (EFERT) is expected to report earnings per share (EPS) of PKR 6.71 and a dividend of PKR 5.40 per share.
Urea offtakes are projected to increase 9.1%, supporting gross margins of approximately 39%. Improved volumes and profitability are also expected to contribute to a substantial sequential recovery in earnings.
FATIMA Benefits From Urea and CAN Pricing
Fatima Fertilizer Company (FATIMA) is projected to report EPS of PKR 4.35, with no dividend expected for the quarter.
Sarsabz urea volumes recorded a significant increase, while premium-brand volumes and NP offtakes declined. Gross margins are forecast near 40%, supported by higher urea and CAN prices and an improved sales mix.
The contrasting performance of individual companies underscores the importance of product diversification, pricing power and sales composition in determining profitability across the fertilizer industry.
Urea Inventories Remain Adequate Despite Supply Concerns
Despite earlier plant shutdowns and an outage in August, Pakistan’s urea inventories are considered adequate to meet near-term demand.
Fourth-quarter offtakes are forecast at approximately 2.0 million tons, compared with expected supply of around 2.5 million tons. This would leave a projected surplus of roughly 0.5 million tons.
The estimated supply-demand balance suggests that immediate shortages are unlikely under the current outlook. However, maintaining adequate availability will depend on consistent RLNG imports and stable production across the industry.
Fertilizer Sector Outlook Depends on Gas Supply and Pricing
Pakistan’s fertilizer industry is entering the final quarter of 2026 with a mixed outlook. Higher nitrogenous fertilizer prices and offtakes are expected to support sector earnings, while rising phosphoric acid costs continue to pressure phosphate margins.
For FFC, the key near-term challenge remains balancing the impact of restricted RLNG availability on urea production against improved domestic pricing. Across the wider sector, financing costs, distribution expenses and the availability of imported inputs will remain important factors shaping profitability.