No major impact on Indian fert sector due to COVID-19

While many sectors are under pressure due to the spread of coronavirus, the impact on Indian fertiliser players is expected to be soft even as a major portion of raw materials for phosphatic fertilisers are imported, according to a report.

The Hubei province is a major centre for production of phosphoric acid and phosphatic fertilisers.

"Even though the production is down in the province, the overall fertiliser market remains well supplied due to the build-up of inventories at the producer's end in China as international prices remained weak," ICRA group head and senior vice president K Ravichandran said.

The fertiliser sector is not expected to witness any major impact on the global front as production in China remains low during January every year following Chinese New Year holidays, the report stated.

As per ICRA's analysis, the domestic industry imports a major portion of the raw materials for phosphatic fertilisers, mainly phosphoric acid and finished fertilisers mainly DAP (47 per cent of total imports in FY2019) from China.

The Indian fertiliser industry, with the markets currently remaining well supplied and the fourth quarter of the financial year being an off-season period for the industry, the impact of the Chinese shutdown is expected to be muted, Ravichandran said.

"Also, the global urea markets have remained well supplied in recent years with new capacities coming online in Africa, the Middle-East and Africa. With the downward trend in Chinese exports continuing for the last couple of years, the impact of the Chinese urea industry on the global market has reduced," he added.

The report said that a silver lining for the Indian urea industry in this crisis is on the natural gas pricing front.

R-LNG, which now meets around 57 per cent of the natural gas consumption for the domestic urea industry, has been witnessing a downtrend in prices.

With the decline in the term LNG prices and the weak spot gas prices, pooled price for the urea players will moderate leading to a lower cost of production and a lower subsidy outgo for the government, it added.

Meanwhile, Icra said, as of now it does not see any major impact on the production in China, though disruptions in logistics and clearances for any material coming in from China for the virus could affect the supply chain and may result in intermittent spikes in the prices of technicals.