Fertiliser sales up, but urea sales down 7%

P&K fertiliser volumes have grown to 13.3 mt in seven months of FY15 driven by relatively low opening inventory levels vis-a-vis previous years and low base effect

While the overall sales volume of fertilisers improved by 3 per cent year-on-year (yoy) to 29.54 million tonne (mt) during the first seven months of FY15, driven mainly by the healthy 17 per cent growth in phosphatic and potassic (P&K) fertilizers, imports, however, picked up during the second quarter of the fiscal. On the other hand, urea sales declined by 7 per cent during the same period to 16.2 mt.

A recent ICRA report shows that P&K fertiliser volumes have grown to 13.3 mt in the seven months of FY15 driven by relatively low opening inventory levels vis-a-vis previous years and low base effect. Nonetheless, imports picked up during the second quarter resulting in a 21 per cent jump in imported volumes of P&K fertilisers.

The sales growth was despite drought in northern and north-western crop belts of Haryana, Punjab, UP and east-MP and regions of Andhra Pradesh and Maharashtra. Monsoon remained largely normal, albeit delayed in most other parts of the country. On the other hand, urea sales declined by 7 per cent during seven months in FY15 to 16.24 mt.

However, ICRA Research notes that the urea sales volume was almost equivalent to volumes seen in the corresponding period during FY12-FY13, implying that FY14 was somewhat of an aberration and sales remain at normal levels. The shrinkage in urea sales volumes has also been on account of lower imports and limited utilisation of Nagarjuna Fertilisers & Chemicals Ltd. plants during Q2 FY15.

ICRA Research estimates that overall fertiliser sales volumes should witness a yoy growth of 3-7 per cent during FY15, with urea sales volumes expected to decline by 3-5per cent and P&K volumes expected to grow by 15-20per cent.

The report further highlights that global urea prices have remained relatively stable in recent months. Trading activity has remained muted and prices continue to remain subdued at $ 325 per tonne (against average of $ 385 per tonne during FY11-FY13). Due to the low coal prices, China is estimated to continue to dominate global urea markets on account of its substantial surplus production, although Chinese exports of urea have been significantly low during year-till-date calendar 2014.

"On the other hand, low energy prices is expected to lead to commissioning of new plants in regions with availability of low cost gas (such as the US, Middle East and Russia). Given these factors, urea prices are expected to continue to stay low in the medium term (with a floor at the $ 300 per tonne level), barring occasional spikes," the report said. ICRA Research believes that there will be continuing pressure on global fertiliser prices and raw materials in the near term.

In terms of reforms, the government is working on a comprehensive fertiliser policy, which is expected to address several aspects of the fertiliser industry and usher in reforms in the sector, particularly on the urea pricing front, in the near-to-medium term. "Reforms in the fertiliser sector would determine the direction that the industry will move in the medium-to-long term. Measures to improve soil health and optimise nutrient consumption, thereby improving yields of various crops should be the underlying motif based on which the reform agenda needs to be worked out to ensure long-term food security of the country," the report said.