Pakistan’s urea market posted a sharp sequential decline in the first quarter of calendar year 2026, with sales falling to 1.04 million tonnes, the lowest level in six years, as the sector normalised after an unusual discount-driven surge in late 2025. Industry analysts said the contraction in 1QCY26 reflects a timing shift in demand rather than a structural slowdown, following aggressive advance buying by dealers in the October–December 2025 period. During that quarter, fertiliser producers including Engro Fertilisers and Fauji Fertiliser Company offered discounts of up to Rs400 per bag to reduce elevated inventories, triggering bulk purchases ahead of the Rabi season and artificially boosting fourth-quarter offtakes.

Once these incentives were withdrawn and prices returned to normal levels in early 2026, dealer activity slowed sharply, with most distributors already holding sufficient stock to cover near-term demand. Topline Securities noted that urea sales dropped to a 24-quarter low in 1QCY26 after companies rolled back discounting strategies that had encouraged heavy advance buying in the previous quarter. Analyst Abdur Rafay said demand had effectively been front-loaded, compressing sales into late 2025 and reducing fresh procurement needs in the January–March cycle.

Despite the steep quarterly decline, overall industry fundamentals remain stable. Pakistan’s annual urea demand exceeds 5.5 million tonnes, and consumption trends continue to track agricultural activity rather than showing signs of contraction. A sector review by Optimus Capital Management reported that fertiliser offtakes were broadly flat on a year-on-year basis in 1QCY26, even as sequential volumes fell sharply.

The report added that sector profitability is projected at Rs26.1 billion for the quarter, up 6% year-on-year but down 30% quarter-on-quarter due to a high base created by discounted sales in late 2025. Inventory adjustments were a key driver of recent volatility. Stocks had built up beyond one million tonnes in late 2025, prompting producers to offer discounts to accelerate liquidation.

These levels have since normalised to an estimated 600,000 to 800,000 tonnes, which analysts consider a balanced range for the market. Production constraints also contributed to supply-side shifts. Gas shortages at RLNG-based fertiliser plants, including Fatima Fertiliser and Agritech Limited, restricted output during the quarter.

Some producers also diverted gas towards DAP production, where margins are higher, further tightening urea availability. Market dynamics also shifted in favour of Fauji Fertiliser Company, which increased its share to around 58% in early 2026 amid constraints faced by rival producers. Looking ahead, analysts expect a gradual recovery in urea sales as dealer inventories are drawn down and demand improves with the upcoming Kharif season.

However, risks remain from potential gas supply disruptions and pricing gaps between domestic and international markets. DAP demand outlook remains more uncertain, with rising global prices and import constraints expected to keep input costs elevated for farmers in the near term.