India looking at low fertiliser subsidy burden, less urea import in FY24

Urea is the most widely consumed fertiliser in the country, which is followed by DAP

In a move signalling the government’s target to reduce fertiliser subsidy for the current fiscal year (FY24), the Cabinet, via a recent notification, drastically reduced per kilogram subsidy for nitrogen, phosphorus, potassium or sulphur for the April-September period.

The subsidy for January-March 2023 has also been revised. The primary reason for the fall in subsidy is the decline in international prices of all key components, along with softening of global energy prices, since the Russia-Ukraine war.

In April 2022, the cost and freight (CFR) price of finished urea was quoted around $627 per tonne, and by May 2023, the same was at $333 per tonne (see chart).

Similarly, the landed price of finished DAP was quoted at $925 per tonne (CFR) in April 2022, while in May 2023, it was trading around $540/tonne (a drop of almost 42 per cent). 

The landed price of the finished DAP jumped to $1,030 in June 2022. Prices of phosphoric acid, ammonia, and sulphur have fallen by 35-80 per cent in more than a year.

The landed price of phosphoric acid was quoted at around $990 per tonne (CFR) in May 2023, down 35.2 per cent from April 2022, while that of ammonia is being quoted at $248 per tonne (CFR), almost 80 per cent less than the price quoted in April 2022.

The pooled gas price, too, has also come down from its peak of $27-28 MMBTU to around $12-13 per MMBTU a few weeks back, leading to lower subsidy burden on the government.

Overall, the total subsidy burden is expected to remain within the budgeted Rs 1.75 trillion for FY24, but some officials said it could exceed the Budget Estimate (BE) by Rs 50,000-55,000 crore.

The reason for this is that most of the stock in hand for the forthcoming kharif season was made at high fertiliser prices. “The budgetary allocation for fertiliser subsidy for FY24 is expected to remain adequate amid moderation in international finished fertiliser as well as raw material prices.

Further, as gas prices have come down significantly, ammonia and urea prices are likely to remain low. India’s urea imports won’t be high this year as domestic production might increase after the commissioning of the new plants. The prices of finished fertiliser and key raw materials are likely to remain low in the near-to-medium term,” Ankit Jain, vice-president, ICRA, told Business Standard.

The expected fall in urea imports in FY24 might favour the industry.

According to some reports, domestically, urea production has gone up by almost 26 per cent in April 2023 due to commissioning of the three state-run fertiliser plants. 

Besides, the Centre feels available urea stock will meet the demand in the kharif season, and there won’t be any need for imports.

The government estimates that till a few weeks back, the country had about 15 million tonnes of fertiliser stock for use in the kharif season, including 7.5 million tonnes of urea, 3.6 million tonnes of DAP and 4.5 million tonnes of NPK.

The industry feels that in FY24, India might import 4-5 million tonnes (mt) of urea in FY24, lower than the estimated 7.5 mt in FY23, trade and industry sources said.

The almost 32 per cent drop in imports anticipated in FY24 will be on the back of increased domestic production capacities from new plants and the growing use of nano urea.

Of the estimated (4-5 mt) imports in FY24, 1-1.5 mt (25-30 per cent) is under long-term contracts, the sources said.

According to industry sources, India imported 8.1 mt urea from April-February in FY22, which has dropped to about 7.4 mt during the same period in FY23. According to trade and industry sources, in FY24, domestic production of urea is expected to be 30-31 mt, up from over 28 mt in FY23, while consumption is expected to be 33-35 mt, and the balance will have to be met through imports.

“Consumption of urea will also depend on how the weather and monsoon pans out as any drop in acreage due to El Nino impact could impact urea consumption,” a senior industry official said.