China's suspension of fertiliser exports to put upward pressure on international prices, amid already limited supplies: ICRA

ICRA expects the GoI to make an additional allocation of around Rs10,000-15,000cr towards the fertiliser subsidy budget in H2 FY2022.

Aug 03, 2021 03:08 IST India Infoline News Service

fertilizer
In a recent development, several Chinese fertiliser players have been directed by the Chinese government to suspend fertiliser exports to meet the robust domestic demand amid rising domestic prices driven by limited supplies and rising energy costs. China is one of the largest producers of fertiliser in the world with 31% of the global urea capacity and 42% of the Di-Ammonium Phosphate (DAP) capacity.

China exported 5.46 MMT of urea and 5.84 MMT of DAP in FY2021, which amounted to ~11% and ~32% share of the urea and DAP global trade. In recent times, the Chinese regulators had cracked down on several fertiliser players, alleging speculation and hoarding amid rising fertiliser prices in the domestic market. The move is aimed at protecting the farming sector from the rising prices.

Mr Sabyasachi Majumdar, Group Head & Senior Vice President at ICRA, while commenting on the suspension of Chinese fertiliser exports, said: “China continues to hold the largest share in the imported fertilisers procured by India with a share of 29% and 27% in urea and DAP imports respectively in FY2021. China’s move to suspend exports will put further pressure on the elevated prices in the international markets amid limited supplies. While earlier we expected the international prices to start moderating by the end of H1 FY2022, with the current development, the prices are expected to sustain through the rabi season. With rising international price levels, currency depreciation in the last couple of months and firming up of natural gas prices, the subsidy budget for fertilisers could get strained again by the end of FY2022.

“ICRA expects the subsidy requirement at around Rs. 100,000-110,000 crore at current price levels with volumes expected to remain flat or witness marginal growth in FY2022. The subsidy allocation for the fertiliser sector currently stands at around Rs. 94,275 crore. Thus, ICRA expects the GoI to make an additional allocation of around Rs. 10,000-15,000 crore towards the fertiliser subsidy budget in H2 FY2022. The additional allocation will be imperative for ensuring adequate fertiliser availability for the farmers in the upcoming rabi season and ensuring a healthy credit profile of the industry.”

The Indian fertiliser industry remains dependent on imports to meet the domestic demand as domestic supplies are limited. The import reliance on urea continues to be significant, given the delay in the commissioning of the new urea plants, resulting in increased domestic production. In the case of DAP the import reliance will continue, with no additional capacities likely in India in the segment.

Mr. Prashant Vasisht, Co-Group Head & Vice President, ICRA Ratings, added: “With the continued rise in international prices, the profitability of the phosphatic segment has moderated in YTD FY2022 vis-à-vis FY2021. The GoI had increased the subsidy rates on phosphatic fertilisers in May 2021 to maintain retail prices at reasonable levels. However, with a further rise in the raw material prices in June and July 2021, particularly ammonia and potash, the industry has started raising the retail prices. The GoI may have to take a relook at the subsidy rates in H2 FY2022, particularly for N and K nutrients, to ensure that the retail prices paid by the farmers do not rise sharply.”

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