Crop & Chemical dashboard for May 2023 by IIFL Capital Services

12 Jun 2023 , 10:59 AM

In May’23, weak demand across various Crop commodities and Chemicals has persisted, driving realisations down further. Over the last month, phenol and acetone prices have declined ~17%; soda ash, caustic soda and benzene prices have declined ~2-11%. Exports and imports of chemicals from India fell 20% and 12% MoM respectively. Commentary of global Agrochemical MNCs remains weak amidst high inventory levels. Glyphosate prices have fallen ~15% over the last month and ~47% over the last 6 months. To add to recessionary concerns, US weather agencies have predicted for the El-Nino to strengthen in the coming months. SRF too has cautioned for early signs of weakness in fluorospecialties.

Global Agriculture update: 

In May’23, prices of most Crop commodities continued to fall, on the back of easing demand. While US wheat and maize prices declined 4-7% MoM, Soybean declined ~10% MoM; owing to robust production and inventory estimate release by the USDA. This season, Brazil is expected to deliver a record corn crop, causing prices to come down ~27% MoM. Indian markets too witnessed fall in prices given the ~5-7% decrease in prices of wheat, maize and soybean.

MSP update: 

Government has announced a 6-7% hike in the MSP of maize, paddy and soybean. While soybean prices are still above MSP, those of maize and paddy are currently below MSP levels. Cotton MSP has been hiked by ~9%; this is expected to stabilise the falling prices.

Long-term contracts signed: 

Chemplast Sanmar and Aether Industries signed LoIs over the last month. While Chemplast has signed LoI with a global Agrochemical innovator, Aether has signed one with a leading Oil and Field Services company. Additionally, Anupam Rasayan also announced the renewal of a US$53mn contract with a German MNC for 3 years.

Update on Chemical prices: 

Prices of key commodity chemicals declined through May’23. While Soda Ash fell ~2% MoM (India prices), Benzene and Caustic Soda declined ~8-11%. Caustic demand has been impacted by a slowdown in demand for downstream products. Phenol and Acetone prices fell ~17% MoM, which has led to spreads falling by ~40% over May’23. Spreads of TAN have also started to correct as the reduction in Ammonia prices has led to a fall in TAN realisations.

Rainfall update: 

While rainfall from 1 Mar to 1 Jun was above normal, that from 1 Jun to date is ~60% below-normal, having as a result of the delayed arrival of monsoon. Reservoir levels are handsomely above the 10yr average, but below those of last year. US weather agencies have cautioned that El Nino has now formed and is expected to strengthen till winter this year.

Other highlights: 

1) Central government has approved new NBS rates and estimated a subsidy outflow of Rs380bn for P&K fertilizers this Kharif season. 2) Tata Group, via Agratas Energy Storage Solutions, has signed a deal with the Gujarat government for building Rs130bn lithium-ion cell factory. 3) UN has warned that there is a high probability that CY23-27 may be the warmest 5yr period ever record – due global warming and El-Nino. 4) Adani Group has revived its investment plan for Mundra Petrochem Ltd, India’s largest PVC plant with initial funding of Rs140-160bn. 5) GHCL announced Rs40bn greenfield project to manufacture 0.5mn tpa of soda ash. 6) Deepak Chem Tech Ltd, a wholly owned subsidiary of Deepak Nitrite, has signed MoU for manufacturing of specialty chemicals, acetone, phenol and bisphenol with the Govt of Gujarat. The anticipated investment is ~Rs50bn, with the project likely to commence in FY25 (completion expected in FY27).