Fertiliser demand likely to be subdued in H1 FY17: Icra

Fertiliser demand is expected to be subdued during the first half of 2016-17 but low energy prices will help in aiding profitability of urea industry, rating agency Icra said today.
"Going forward, the demand for fertilisers is expected to be subdued during H1 FY17 because of high inventory levels and relatively high base of H1 FY16. Nevertheless, low energy prices should aid the profitability of the urea industry," it said in a report here.
However, profitability of phosphatic and potassic (P&K) segment would remain under pressure due to reduction in nitrogen, phosphorus, and potassium (NPK) subsidy rates, which will take away the benefit of lower global prices of intermediates or finished fertilisers. Also, high inventory levels would constrain the players' ability to increase the retail prices of the P&K fertilisers, it said.

Icra said despite drought for a second straight year in 2015, fertiliser sales volumes grew at a moderate 7 per cent year-on-year (YoY) during 10 months on FY16 to 47.82 million tonnes (MMT).
The report stated that fertiliser consumption at the farmers' end has been impacted by two consecutive years of weak monsoons. As a result, systemic inventory of P&K fertilisers increased to five-year high levels as of end- January 2016.
Icra expects the inventory to come down to more reasonable levels by the end of kharif 2016, provided the monsoons are normal and players maintain market discipline.

During CY2015, fertiliser prices have been bearish and urea rates fell by 30-35 per cent because of high Chinese exports during the early part of the year and later on because of higher production by countries in West Asia due to low gas prices.

The prices for DAP have followed a similar trend during the last four to six months, falling 20 per cent on account of high Chinese exports (up 45-50 per cent in CY2015) and weak demand. Going forward, Icra expects urea and DAP prices to remain subdued.
Similar to urea and diammonium phosphate (DAP), prices of muriate of potash (MOP) have also been bearish, although the decline in prices has been lower because of the concentration of sellers and the ability of manufacturers to cut back production, the rating outfit added.