The Indian fertiliser market is laden with stocks at a time when the agricultural season has come to an end and inventory should be low.
Most companies are focusing on spot purchases since global prices are low, said an official from a national fertiliser company. The rupee is also strengthening, which works in favour of imports, so there’s wait and watch, officials said.
Usually when global prices fall, bulk purchases get attractive discounts. Companies stock inventory towards March–April to meet demand for the kharif season, which starts in June-July. This is also to meet unseen demand, since March–April is the period for annual plant shutdown by many companies for maintenance.
However, officials added, this year there is huge piling of inventory across products at various ports. “Dealer discounts and rebates are likely to go up to push offtake in the market down the line in a few months,”said fertiliser manufacturer sources.
However, there seem to be divergent views among companies on reduction in the retail price. Those not supporting a price cut argue that a downward revision will be a loss for companies, since demand for fertiliser has anyway come down substantially this year.
Second, farmers would expect the same price to continue for the kharif season, the peak one for fertilisers. Third, since plant shutdown will be there for many production facilities in March- April, demand and supply will be managed.
Usually a dealer gets a rebate of Rs 250-400 a tonne, which may go up now by another Rs 200-400 a tonne across complexes. Globally, the price of the main raw material, ammonia, has crashed from a high of $575-625 a tonne to $470 a tonne including freight. The price of diammonium phosphate, the main fertiliser has come down from a high of $675-685 per tonne to $525 per tonne.
At the beginning of last year in India, average prices were Rs 650-680 per bag and are now Rs 1,000 per bag. DAP was Rs 11,000 a tonne at the beginning of the kharif season in May-June and is now Rs 18,500 a tonne. Since April 2010 when the government decontrolled non-urea fertilisers, of DAP has almost doubled from Rs 9,350 a tonne at the time.
The sector faces a huge demand and supply gap in India. While urea is completely regulated, supply and pricing of two other major varieties, DAP and muriate of potash, is deregulated.
The total installed capacity is 17.7 million tonnes. According to 2009-10 data, annual domestic consumption has increased from 70,000 tonnes in 1951-52 to 26.4 million tonnes in 2009-10. Currently, the annual fertiliser subsidy stands at Rs 90,000 crore.
Sources in fertiliser companies said the global outlook for all categories was bearish, as is evident from forward swap rates in the market.
