DAP prices might soften ahead as inputs costs in global markets look down

Centre may not need to provide further support this year as worst seems over for the two major input that goes into making DAP for now

After a hefty 140 per cent increase in subsidy for Di-Ammonia Phosphate (DAP) to compensate for the steep hike in its input cost, the Central government might not need to provide any further support this year as worst seems to over for the two major input that goes into making DAP for the time being.

Experts said from here onwards, the international prices of ammonia and phosphoric acid (the two major raw materials that goes into making DAP), is expected to soften in the coming months which should give a breather to DAP.

This is because the peak demand season for DAP is almost over in the US, Brazil and China as their major planting season is almost over.

In the last few months, all major fertiliser companies including the biggest of them all, IFFCO had hiked DAP rates along with prices of other complex fertilisers as international prices of phosphoric acid and ammonia, which are key components of making DAP has risen by 60-70 per cent.

Yesterday, in a late evening move, the Central government rolled back the steep 58 per cent hike in Di-Ammonia Phosphate (DAP) rates by increasing its share of subsidy from Rs 500 per bag to Rs 1200 per bag, a rise of 140 per cent.

The increase in subsidy will allow fertiliser companies to sell DAP at the old rate of Rs 1200 per bag as against the new price of Rs 1900 per bag which was applicable from April 1, 2021.

An official statement said that the Centre will spend an additional subsidy of Rs 14,775 crore on fertiliser subsidy in the current financial year. This will be over and above the sum of around Rs 80,000-85,000 crore that it incurs on fertiliser subsidies every year.

The spot price of ammonia is expected to soften from around $430 per tonne to $300 per tonne, while in case of phosphoric acid, the expectation is that spot prices will go down from $998 per tonne to around $700-750 per tonne in the next 3-4 months.

“The DAP prices and also the price of its major raw materials such ammonia and phosphoric acid has peaked in the international markets and there is all possibility that from here onwards prices will soften, which will have a favorable impact on the input cost of fertiliser companies thereby reducing the load on subsidies,” Sabyasachi Majumdar, Group Head and Senior Vice President at ICRA Ratings Agency told Business Standard.

He said as per ICRA estimates the additional allocation is expected to be sufficient to meet the subsidy outgo for the kharif season and thus will keep the credit profile of the industry healthy.

IN case of imported DAP, sources said that prices are expected to moderate from the current $560 per tonne (CFR) to around $475-500 per tonne (CFR) by the second half of this financial year due to tapering up of international demand.

If the input cost of DAP indeed falls as per expectation, then Centre might even lower its subsidy support from the current Rs 1200 per bag.

However, some experts said that it is too early to say as to how the international markets will behave and whether the input cost of DAP will go down as is being anticipated.

“Yesterday’s step was taken keeping in mind the prevailing situation of high prices ahead of the planting season. Now, how prices will move in the coming months is very difficult to say as a lot of factors play in the international markets,” a senior official from Fertilizer Association of India (FAI) said.