Fertiliser industry's overall volumes rose 7 per cent to 58.2 million tonnes in 2015-16 despite back to back droughts in the last two years, ratings agency Icra has said.
The overall volume for fertiliser industry during 2014-15 had stood at 54.1 million tonnes, Icra's fertiliser industry report 'Fertiliser Volumes, Prices Trends and the Green Vision' said.
"The volume growth during FY16 has been driven by low opening inventory levels compared with the previous years, and low base effect and was supported by moderate growth in the domestic production of urea and higher import for non-urea fertilisers. However, higher volume growth has increased the systemic inventory levels as on March 2016.
"The domestic production of urea witnessed healthy 8 per cent growth during FY16, driven by favourable policy changes by the government, especially the New Urea Policy 2015 and the Gas Pooling Policy" it added.
Due to high systemic inventory levels as on end of last fiscal, the overall fertiliser sales volumes by manufacturers have fallen by 33 per cent year-on-year to 4.74 million tonnes during two months in FY17, Icra Senior Vice President and Co-Head Corporate Ratings K Ravichandran said.
"However, fertiliser consumption at the farmers' end has been better as the systemic inventory of P&K fertilisers have reduced by May 2016, compared to January 2016 levels," he said.
"The performance of the fertiliser industry is likely to remain subdued in first half of FY17 due to high channel inventories, which are expected to get liquidated by the end of the kharif season," he added.
According to Ravichandran, overall, in FY17, the upside in the overall volumes is likely to be limited at 2-5 per cent due to high systemic inventory levels at the beginning of the year.
The urea industry would continue to benefit from subdued energy price environment which is likely to drive cost of production lower, he added.
"However, on the P&K front, profitability pressure will remain for the players in FY17, due to subdued DAP prices and lower NBS subsidy rates, while raw material prices have not fallen to that extent, besides currency depreciation remains a key risk.
"However, the recently concluded potash contract, at 32 per cent discount over CY2015 prices, would be beneficial as it provides the scope for growth for domestic MOP consumption during FY2017 by 5-7 per cent, given the low base, expectations of a normal monsoon and with reduction in retail prices," Ravichandran added.
