Fertilisers : Survival still hangs in balance for some units
The absence of Long term Fertilizer policy haunts the industry
Budget provisions
No change in customs / excise duty on fertilizers.
Farmgate prices of Urea, DAP and MOP increased by 5%. Prices of complex fertilizers will also be accordingly modified based on their nutrient content.
Reduction in subsidy on SSP by Rs 50 per tonne.
Special additional duties on crude or unrefined sulphur and ground natural calcium phosphate imposed.
Budget provisions Vs expectations
| Parameters |
Expectations |
Proposed |
| Long term fertilizer policy |
Will clear ambiguities in the proposed subsidy for various groups of fertilizer units. |
Not cleared. |
| Import duty on Urea |
To be hiked, if urea imports are freed |
Neither Urea imports were freed not import duty hiked |
| Duty on Plant & Machinery for fertilizer industry |
Withdrawal of duty on import of plant and machinery for green field / brown field expansions and modernisation. |
No such withdrawal proposed |
| Import duty on LNG |
To be exempt for fertilizer production |
Not proposed |
| Import duty on rock phosphate, phosphoric acid, ammonia and sulphur |
To be removed |
Not proposed |
Reactions
RJ Masilamani, Directior General of Fertilizer Association of India said,
"There are a lot of good initiatives, including a proposal for reduction in the fertilizer subsidy, which will help boost the agricultural sector.
"The five percent increase in the issue price of urea, DAP and MOP was in line with expectations of the industry.
"Except for SSP these prices were being fixed by the Centre and subsidy was provided to the manufacturers by the government, both the manufacturers as well as farmers would benefit from the move.
"The SSP price was fixed by the state government and I expect a quick response from the state governments in this regard.
"The government continued to discriminate between the SSP and DAP despite repeated suggestions, and I hope that the finance minister would take some steps to remove it in the near future.
Prasad Menon, Managing Director, Tata Chemicals said,
"On the agricultural front, the general thrust is a good one. Policy decisions are encouraging but we have to see how far it gets implemented.
"As far as fertilizer industry is concerned the finance minister has taken the right move. For the last two years there hasn't been any increase in fertilizer price. This is a marginal hike and the move is in line with the recommendations of the expenditure reforms commission.
"The subsidy cut with corresponding hike in selling price will not hit manufacturers since the farmers will have to bear it."
D K Varma, CMD, Rashtriya Chemicals said,
"The budget was focussed on agriculture but there was no announcement of any changes on labour policy as well as agricultural land reforms.
"The fertilizer industry is disappointed since the long term fertilizer policy has not been announced. We were expecting a 10-15 per cent hike in fertilizer price. The 5 per cent hike in issue price is very marginal.
"Our view is that expectation on cut in subsidy will not materialise because after the dismantling of APM the price of feedstock like gas and naphtha will go up."
Current Industry Status
The fertilizer industry is facing a painful process of transition from a protected to a decontrolled era. In the process, many of the units, particularly Naphtha based units are likely to become unviable, if the government suddenly goes in the reverse direction, without giving time for the industry.
The country is disadvantageously positioned as far as the feedstock is concerned, and hence, the domestic cost of production is higher than the global prices! Hence, on its own, it is unlikely to face global competition, considering inherent disadvantages of the country’s resources.
Fertilizer production for the nine months ended Dec'01 reflected a fall in production of both nitrogen and phosphate by 2.61% and 1.77% to 81.65 and 28.78 lakh tonne. The cumulative availability of Urea and DAP showed mixed trends, with Urea availability increasing by 2.87% to 71.6 million tonne while DAP availability falling by 9.34% to 25.64 lakh tonne in the current Rabi by the end of Dec'01. Despite such mixed trends in availability, the sales of Urea and DAP increased by 9% and 4% respectively to 52.57 lakh tonne and 20.55 lakh tonne during the above period.
The country's dependence on fertilizer imports have increased during the above period, as its import of Urea, DAP and MOP increased by 100%, 4.88% and 8.97% to 2.2 lakh tonne, 9.02 lakh tonne and 23.56 lakh tonne. Incidentally, during the same period of the previous year, Urea imports were nil.
Impact of budget on the industry’s prospects
The offtake of fertilizers is likely to be affected on account of 5% increase in farmgate prices of Urea, DAP and MOP. This year also, the much-expected long-term fertilizer policy eluded the industry. Perhaps, the industry’s biggest disappointment will be on this score.
The increase in Farmgate prices of fertilizers will only reduce the subsidy burden of the government, and will not benefit the industry. However, the reduction in subsidy on SSP by Rs 50 per tonne will adversely affect SSP producers.
Company impact
Much awaited long-term fertilizer policy is yet to be made official. Hence, the impact of the same, which will be far reaching, is more relevant. Nevertheless, the increase in farm gate prices is likely to affect the domestic offtake of fertilizers. Similarly SSP producers like Dharamsi Morarji Chemicals, EID Parry, Mardia Chemicals etc are likely to be adversely affected on account of reduction of subsidy.
Companies to watch
The long-term fertilizer policy will decide the fate of the fertilizer industry and its prospects. But no clarifications on the policy matter are forthcoming as of now. Hence, it is difficult to predict as to which of the companies will survive, and which of the rest with thrive. Much of these issues will be clarified on the announcement and appropriate implementation of long term fertilizer policy. Hence, avoid fertilizer scrips.
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