Agriculture and Chemicals: Crop & Chemical dashboard: August 2023

11 Sep 2023 , 11:04 AM

The last couple of months have seen a sharp increase in the prices of several commodities. Analysts of IIFL Capital Services attribute this to the expectations of stimulus from China, lower exports by Chinese manufacturers and the recent rally in crude prices. However, analysts of IIFL Capital Services channel checks indicate that domestic and export demand remains muted; not yet witnessing any meaningful recovery. The last month has also seen a sharp hike in the prices of urea, DAP and ammonia — which may lead to a budget-overrun for the government. The El-Nino has impacted rainfall in Aug’23; but its effect on sowing, if any, will likely only be visible in the Rabi season. 

Rally in chemical prices: 

Over the last month, crude prices have rallied ~14% driving up the prices of most chemicals. While prices of benzene, caustic and phenol rose ~1-5% MoM, those of bromine, ethyl acetate and propylene increased 9-25%. Analysts of IIFL Capital Services channel checks indicate muted demand environment persisting for most of the chemicals in domestic and export markets; however, the recent recovery in chemical prices is being attributed to lower aggression by Chinese suppliers (as strategy shifts from delivering volumes to limiting losses). Analysts of IIFL Capital Services also note that historically, China is known to curb manufacturing activities during the winter months (to reign in air pollution). However, this time it could be voluntary shutdowns by the industry owing to weak demand, which could add some support to the prices in near term. Analysts of IIFL Capital Services are not yet witnessing any meaningful recovery in the demand environment and therefore believe that the current momentum is unlikely to hold steady. 

Fertiliser prices rally: 

Over the last month, urea and DAP prices rallied ~18-20% on increased seasonal demand in Brazil and the DAP-ban by China up to Sep’23. Ammonia prices have gone up by ~35% over the last month. While ammonia is a raw material for Deepak Fertilisers, the rising trend augurs well for its new ammonia plant. At ~US$400/MT, the plant will contribute to the overall Ebitda. 

Global Agriculture update: 

Aug’23 witnessed a 6-14% correction in soybean, wheat and corn prices. Reduction in wheat and corn prices was driven by better harvest expectation (due to improving weather conditions) and falling demand. Prices of key crop commodities in India were largely stable. Tomato prices corrected by ~63% over the last month; but are still higher by ~50%. 

Sowing and rainfall update: 

While the overall acreage sown is flat YoY, acreages for pulses are lower by ~9%. This is offset by the higher acreage of rice. While the El Nino has formed in the H2 of monsoon, crop sowing and production this Kharif will probably be unaffected. August was a relatively dry month as rainfall deficit fell to ~11%, as at 5th September. Reservoir levels in South and East India are at a big deficit to average levels – which could impact sowing patterns during Rabi. Till date, rainfall has been normal or better in only ~25 out of the 36 districts (was 30 a month back). 

Other highlights: 

1) The Supreme Court of India has refused the government’s request to proceed with the environmental release of genetically modified (GM) mustard. 2) Finance ministry is considering introducing a production-linked incentive (PLI) scheme for the Chemicals sector, but there aren’t any proposals yet for such a scheme for the Petrochemical industry. 3) South-East Asia and India’s polyvinyl chloride (PVC) markets are seeing better demand in Q3, amid supply shortages in the North-East Asia and US. 4) Caustic soda prices gained an upward momentum across the US and Asian markets, primarily driven by supply disruptions and slowly improving demand from the downstream industries. 5) SRF has commissioned dedicated facility to produce advanced intermediates for agrochemicals at Dahej at a total cost of Rs2.6bn. 7) Chemplast Sanmar commissions the first phase of MPP in its CSM division with a total investment of about Rs 3bn. 8) An incident occurred at PI Industries Jambusar plant, as Bromine leaked in one of its storage tanks.