Recent reduction in phosphoric acid prices is expected to benefit phosphatic and potassic (P&K) players and bring down retail prices, ICRA Ratings said in a report.
"Recent reduction in phosphoric acid prices by 14-16 per cent to USD 600-620/MT in July-September of last fiscal as against USD 715/ MT in first half of this year and USD 810/MT in July-December of last year is beneficial for the P&K players," ICRA Senior VP & Co-Head, Corporate Ratings K Ravichandran said.
Lower phosphoric acid price along with lower ammonia and sulphur prices lead to lower manufacturing cost and provide scope for the private players to undertake cuts in the retail prices as advised by the government, Ravichandran added.
According to him, increasing government intervention in pricing decisions for a supposedly de-regulated market is credit negative for the industry, as it could weaken the profit metrics of the players.
In ICRA research's view, despite lower phosphoric acid prices, the profitability for the Di-Ammonium Phosphate (DAP) manufacturers would remain modest.
Further, as DAP prices remain subdued, imports would provide marginally better profitability and consequently, the players might continue to fulfil DAP demand largely from imports, the report said.
According to the report, players with integrated plants (who are into captive production of phosphoric acid), are better placed than non-integrated players as prices of rock phosphate and sulphur have fallen sharply.
Also, lower raw materials prices augur well for the NPK players who would continue to remain more profitable than DAP makers as industry players might continue to prioritise NPK production over DAP.
According to Ravichandran, lower retail prices might also lead to a pick-up in demand for NPK fertilisers with the narrowing of price differential between urea and non-urea fertilisers and normal monsoons.
Moreover, lower systemic inventory levels should aid sales growth during second half of this fiscal. Additionally, the industry players expect phosphoric acid prices to fall further from current levels, which should also aid profitability in July-December period of 2016-17, ICRA said.
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