FERTILISERS

Subsidy demand likely to overshoot

 The International Fertilizer Industry Association (IFA) has projected faster growth in global demand for fertilizers in 2013-14 due to an anticipated recovery in demand for phosphatic and potassic fertilizers in India. Nevertheless, tight grain markets are expected to stimulate fertilizer demand. Aggregate demand is forecast to be up by 2.4% to 181.6 Mt. According to the IFA, the prospects of global sales in 2013 would show 2-3% growth, reaching 232 Mt nutrients. A potential upside recovery is anticipated for potash, and some relative tightness is foreseen for seaborne ammonia and sulphur.

PRICES
Global DAP prices have eased from USD 564.40 per tonne in June 2012 to USD 563.10 in July 2012 and to USD 559 in August 2012, but then went up by 3% to US$ 573 per tonne in September and October 2012, to again fall to US$ 499 in December 2012. However, on YoY basis it was lower by 13% in December and 12% during April-December 2012.

POLICY CAN UNLEASH RS 40000 CRORE INVESTMENTS

The government has plans in place for an investment of up to Rs.40000 crore in urea capacities which could enhance domestic output by up to 10 million tonne in five years. The amount of subsidy to be given by the government will be based on the gas price and import parity prices (IPP)

 The demand for urea has been growing at a rate of 3% annually but because of policy uncertainty till now, the sector has not seen any investments in the last 15 years in the country.

SUBSIDY DEMAND LIKELY TO OVERSHOOT BUDGET ESTIMATE BY 62%

As the government struggles to meet the fiscal deficit target of 5.3 per cent of the GDP, the demand for fertiliser subsidy in the current financial year (FY 2013) might swell by 62 % over the budget estimate of Rs 60,974 crore. Meanwhile, the fertiliser industry complained that there has been a delay in payment of subsidies to companies, which is creating pressure on the domestic fertiliser industry. In the union budget for FY 2013, a provision of Rs.61,000 crore was made for fertiliser subsidy.

WORSENING SITUATION
The government pays the difference between the cost of production or import of fertilisers and the farmgate prices, which is known as subsidy. At present, about 60 per cent of the total cost of production and import is met through subsidy, according industry sources. It is becoming increasingly difficult for the fertiliser companies to make payment for the feedstock for want of working capital. Some of the units are on the verge of closure because of their inability to pay for the raw materials required for continuing production, said the association.

 Unless immediate measures are taken to correct the situation, a significant portion of existing domestic production may become unviable, necessitating further imports at exorbitant international prices.

There is urgent need for arrangement for additional funds of about Rs 38,000 crore to save the fertiliser industry from the current financial crisis and enable it to continue operations and supply fertilisers to the farmers. Large outstanding bills increase the working capital requirements of the industry and cost there of, the association said.

SUBSIDY OVERDUES MAY PROMPT UREA PRICE HIKE

 A urea price hike seems inevitable, as the Budget has effectively provided Rs 27,046 crore toward fertiliser subsidy, which is far from adequate. At present GOVT. owes about Rs 39,000 crore to fertiliser makers, as the subsidy for 2012-13 has overshot the budget estimate to such extent. The overrun in subsidy burden was due to a sharp increase in global prices of potash and phosphatic fertilisers last year and impact of a weakened rupee, as the country heavily relies on imports for such nutrients. The delay in subsidy payment has resulted in cash flow problems for many a fertiliser makers.

 The industry has been demanding an increase in urea prices for quite some time now, as this will not only help contain the subsidy burden but would also prevent the impact on soil health. The huge price differential in the price of urea and non-urea complexes has led to the indiscriminate use of the nutrient for the second year, resulting in imbalanced fertigation (the application of fertilisers or other water soluble products to the irrigation system).

However, the Government has been dithering on increasing the prices, as urea is a politically sensitive issue, even as there is pressure on it to reduce subsidies to contain the fiscal deficit.