Potash prices headed north

After witnessing a 150 per cent rise in prices since the nutrient-based subsidy (NBS) scheme was introduced in April 2010, potash fertilisers might turn dearer again in the coming days, even as the industry has said it may not raise prices for at least three months.

This time, the rise would be due to contracts for import of muriate of potash (MOP), negotiated by fertiliser companies earlier, but with higher prices from this month. Many Indian companies have an MOP import contract that has two prices for the primary nutrient, one of $470 per tonne till December 2011 and $530 from January to March 2012. By the contracts, two-thirds of the import was to be done at $470 per tonne before December 31 and the rest from January to March at $530.

Also, rupee depreciation would translate into higher prices in rupee terms. Despite the rupee depreciating by 20 per cent against the dollar in recent months, Indian fertiliser companies did not pass on higher prices to customers and faced a squeezed profit margin. Hence, the increase of $60 per tonne might prompt companies to increase the farmgate prices of potash fertilisers and a range of complex fertilisers containing potash.

India meets all its demand for potash fertiliser through imports. These have been five to six million tonnes annually for some time.

Analysts tracking the sector also feel a price rise is imminent. Tarun Surana of Sunidhi Securities says, “There has to be a price rise. Otherwise, the business will not be viable.”

The farmgate price of MOP had shot up one-and-a-half times to Rs 11,300 per tonne since the introduction of NBS. The MRP per tonne for MOP was Rs 4,455 before April 2010. The import price at $530 per tonne would mske MOP Rs 31,000 per tonne for importers, while the government gives a subsidy of around Rs 16,000 per tonne. Hence, the price has to be around Rs 15,000 per tonne.

Also, there have been reports that international producers of potash have planned to reduce the production in 2012, citing maintenance of mines. Surana feels the reduction in output would be due to declining demand, following the high prices.

The decreased output might raise prices further when the new contracts would be signed later this year. But, industry players say they may not immediately raise prices.

U S Awasthi, managing director of Indian Farmers Fertiliser Cooperative Ltd is confident that prices will not be increased till March.

P S Gahlaut, managing director of Indian Potash Ltd, says the industry will try its best to resist any rise in prices. B D Sinha, MD of Kribhco, says the next three months would have low demand for potash fertiliser and, hence, would not have much impact on prices.