Fertilizer Study India's Fertilizers Industry Fallen on Hard Times
Though the demand for fertilizers in the devloping markets looks promising, the industry faced quite a few challenges in the Indian market, in the FY12-13. Read, how gas prices and subsidiaries could affect the future of India's fertilizer business...
FY12-13 was a difficult year for the fertilizer industry, with demand getting affected on account of a delayed and deficient monsoon, and significant inflation following high input prices, decline in subsidy rates and currency fluctuations. Sales of all fertilizers except urea declined in FY12-13, with the overall sales volumes declining by 11 per cent to 53.4 Million Metric Tonnes (MMT) from 59.9 MMT in FY12-13.
Furthermore, delays in subsidies due to significantly low budgeting, led to high short-term borrowings and substantial increase in interest costs. Consequently, most players faced profitability constraints and cash flow pressures. Along with the subsidy problems, rising gas prices and currency depreciation are other issues that plagued the industry.
Rising Gas Prices Put Pressure on Fertilizers
As the industry faces higher gas prices going forward, the diversion of gas and the consequent support by the Government of India (GoI) for the industry remains to be seen. The only positive aspect of the increase in gas price for the industry is that if it leads to an increase in domestic gas production, the fertilizer sector may get additional allocations as it enjoys the top priority for gas allocation.
The GoI reduced the subsidy on NPK nutrients, under the Nutrient-Based Subsidy (NBS) for FY13-14, on account of falling global prices of fertilizers as well as the declining prices of raw materials. The new NBS subsidy rates should reduce the P&K subsidy burden of the GoI by 15-18 per cent, i.e. by `45-50 billion, depending on consumption in FY13-14. Retail prices of these fertilizers also witnessed decline, as mandated by the Department of Fertilisers (DoF); However, currency weakening in the recent past has threatened to increase the import prices of raw materials and fertilizers.