Fertilizer demand set to revive in first half

Fertilizer demand set to revive in first half

After disappointing sales last year, fertiliser demand is set to witness moderate growth in the first half of this fiscal due to improved spending by farmers with higher MSPs for rabi crops and strong sowing witnessed during the season.

The thrust on usage of better fertilisers will improve if the proposal to waive farm loans is implemented by the State government. Last year the demand was very low due to the drought in some States.

The primary sales for fertilisers declined nearly one per cent in the 11 months of this fiscal as urea sales declined six per cent due to implementation of 100 per cent neem-coating of urea.

However, non-urea fertiliser sales volumes were up seven per cent to 19.89 tonnes. The implementation of 100 per cent neem-coating of urea curbed black marketing and improved the nutrient effectiveness, coupled with the drop in prices of non-urea fertilisers, which had a favourable impact on NPK (nitrogen, phosphorus and potassium) sales and P&K fertiliser.

K Ravichandran, Senior Vice-President, ICRA, said the recent uptick in international gas prices is expected to increase the cost of production next fiscal for the urea industry. This will translate to higher subsidies and higher working capital borrowings for the industry.

Subsidy backlog

While the subsidy backlog at the end of this fiscal is expected to decline to

Rs. 30,000-32,000 crore, allocation remains unchanged at Rs. 70,000 crore for next fiscal. The outstanding subsidiary payment will go up by end of next fiscal with rising gas cost and firming global fertiliser prices.

Despite rising gas costs, Indian companies are expected to remain competitive against imports as international prices have increased recently due to the revival in Chinese exports.

On the other hand the domestic P&K industry should continue to benefit in the near term from subdued international prices for key raw materials such as phosphoric acid and ammonia, said Ravichandran.

The fertiliser industry’s revenue was down 15 per cent this fiscal due to a fall in urea prices. Further, sales of associated chemicals witnessed a contraction due to the down-cycle in commodity prices.

However, profitability of the industry was moderate as the operating margins increased to 10.8 per cent in nine months of this fiscal against 8.4 per cent logged in the corresponding period of the preceding year due to lower raw material prices.