Tough time for fertilisers

According to a Crisil report, fertiliser manufacturers with healthy operations and conservative capital structures are better equipped than others to withstand the mounting pressure.

The costs of raw materials such as naphtha, which is linked to crude price, increased sharply after the spike in oil prices.

Naphtha prices were Rs 49,920 a tonne as on June 16, a 12 per cent increase over the same period in the previous year.

 

The price of ammonia increased to $618 a tonne in April 2008 from $382 in March 2007. Similarly, the international price of phosphoric acid has more than trebled to $1,985 a tonne in April 2008 from the contracted price of $566 in 2007-08.

The country's dependence on imported urea has increased steadily in recent years on account of stagnant domestic production. In 2007-08, India imported around 6.9 million tonnes of urea, an increase of 47 per cent from the previous year. Consumption has continued to grow, but no new urea plant has been commissioned since 1999, the report said.

The fertiliser manufacturers utilised more than 95 per cent of their capacity in the previous year.

However, unfavourable government policies continue to thwart fresh investments in the sector, the report said.

According to Crisil, the government's subsidy bill for fertilisers continue to rise on the back of increasing international prices and input costs. This is aggravated by rising dependence on imported fertilisers.

"Government not only has to subsidise more tonnes of imported fertilisers, it also has to pay more subsidy per tonne, as, global prices increase while farm-gate prices do not," the report said.

The fertiliser subsidy burden is expected to more than double, to nearly Rs 95,000 crore in 2008-09 from Rs 45,000 crore in 2007-08. The government has, however, budgeted Rs 31,000 crore as fertiliser subsidy for the current financial year.

Crisil said for manufacturers, high input prices in 2008-09 will result in increased subsidies.

How fast these actually translate into receipts will depend entirely on the government's finanical position, it added.