Good times for Indian fertiliser makers as global capacity rises

By Raji Reddy Kesireddy, ET Bureau | 7 Nov, 2014
HYDERABAD: Global capacity addition in the fertiliser sector will not only lower raw material costs for Indian fertiliser makers but also enable the government to cut its subsidy burden, analysts and industry players say. According to the International Fertilizer Industry Association (IFA), close to 200 expansion projects for fertiliser raw materials, involving about $110 billion in investments, are at an advanced stage of development.

These projects, coming up in Morocco, Saudi Arabia, China, Brazil, Canada and Russia, are scheduled to become operational in the next four-five years.

Kapil Mehan, MD of Coromandel International, India's largest fertiliser company by sales, said the country was facing a dearth of raw materials such as phosphate re sources to manufacture fertilisers."Any capacity addition of these basic raw materials globally is a good development for our country. Improvement in global supplies could bring down their prices in the international market, help the government lower its import bill and enable the fertiliser companies pass on the benefits to farmers through affordable prices," Mehan said. India imports about 14 million tonne of finished fertilisers and about 12 million tonne of raw materials, according to the Fertilizer Association of India (IFA).

The country imports 90% of its requirement of phosphates, the en tire potash demand and 25% of its requirement of urea. In its latest report, the IFA said a large part of DAP capacity expansion over the next five years are earmarked for exports.

"About 22 new units for processed phosphates are planned between 2013 and 2018. China would account for one third of them. Morocco and Saudi Arabia would add another seven new facilities. Global capacity of the main processed fertilizers would grow by 5.1 million tonne between 2013 and 2018, to 47.7 million tonne."

The new supply would be absorbed by growth of demand until 2015."Expansion of supply would start to exceed demand growth by 2016, resulting in higher potential surplus, which may equate to 6% of potential supply in 2018," IFA said.

According to Aditya Jhawar, analyst with Espirito Santo Investment Bank, "The new capacity addition would help meet the growing demand of fertilisers and would also keep demandsupply equation more geared towards buyers, thereby keeping a check on global fertiliser prices." IFA direc tor-general Satish Chander had a different view. "Additional availability in the international market . may not necessarily lead to reduction in international prices," he , said, adding "international prices are volatile and do not reflect the cost of production and margin. It is influenced by demand from major buyers, ocean freight, crude oil prices, variation in exchange rate and a variety of other factors."

Chander advised withdrawing customs duty on raw materials to reduce the cost of complex fertilis ers, which contain nitrogen, phos phorus and potassium.