Rising Prices May Hit Imports Of Di-Ammonium Phosphate.

Indian fertilizer companies may not import as much di-ammonium phosphate (DAP) as they usually do every year because prices of the chemical are rising on greater global demand.

India imports a majority of its requirement of DAP, the second-largest selling fertilizer in the country after urea, either in finished form or as phosphoric acid, an intermediate.

India’s contracting price is a function of the subsidy that the government extends on fertilizers. The subsidy on DAP currently translates to a benchmarked price of $612 (`27,173) per tonne.

Industry executives and government officials say the international price of DAP is likely to cross $660 per tonne by October, which is when Indian companies usually begin contracting for purchases in the following fiscal year.

Contracts are either long term or on the international spot market.

“The international price of phosphoric acid has gone up from $980 per tonne a few months back to $1,050 per tonne,” an executive with Chambal Fertilisers and Chemicals Ltd said on condition of anonymity. “This would mean that the price of DAP would touch $660 per tonne by October.” Price increases in the international market have already had an impact this year. Industry and government officials say that since October 2010, Indian companies have contracted only 4.6 million tonnes of DAP, as against 6.5 million tonnes between October 2009 and October 2010, a decrease of nearly 30%.

India usually imports about 8 million tonnes of DAP from Morocco, Jordan, China and other exporters, and through international groupings such as the Phosphate Chemicals Export Association, Inc. (PhosChem). The total annual domestic demand is about 11-12 million tonnes.

Nearly all the contracting has been done by non-government entities such as the Indian Farmers Fertiliser Co-operative Ltd (Iffco), Indian Potash Ltd, Zuari Industries Ltd, Chambal Fertilisers and Chemicals Ltd and Coromandel International Ltd.

An Iffco official said the co-operative, along with Indian Potash, in which it has a substantial stake, had contracted for 1.5 million tonnes of DAP against the targeted 2 million tonnes. Chambal and Zuari have together contracted 0.7 million tonne thus far, the Chambal executive said.

State-owned fertilizer companies, which normally account for 10-15% of DAP imports, have thus far not contracted any significant amounts. Fertilizer ministry officials said that state-run companies such as National Fertilizers Ltd (NFL) and Rashtriya Chemicals and Fertilizers Ltd (RCF) have contracted little or no DAP this year.

Although both NFL and RCF have floated tenders for contracting DAP, there has been no significant response thus far, they said. “Private companies can contract aggressively, as they do not have to go via a tendering process unlike public sector units that have to follow government norms,” said a fertilizer ministry official.

The international spot price for DAP is currently $630-640, said Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd.

“Global demand has been rising in the last few years. Moreover, the recent political disturbances in the Middle East and north Africa have led to disruptions in the supply of DAP and phosphoric acid,” he said. The government official cited above, however, said the government was unlikely to raise the subsidy on DAP. Since the fertilizer comes under the decontrolled nutrient based subsidy regime, companies should increase the maximum retail price, passing it on to farmers, he said.

In April, the government had, however, asked companies not to raise the price of the fertilizer by more than `600 per tonne from the then prevailing maximum retail price of `10,750 per tonne. On 8 July, the government removed this restriction as international prices were still rising. It had then asked companies to keep rates at a “reasonable level”.

Source : livemint.com