PotashCorp acquisition may add to fertiliser subsidy bill.

NEW DELHI: India seems relegated to a bit role in the ongoing global potash sector buyout drama despite being the biggest importer in the world. Acquisition of Canada’s PotashCorp by Australia’s BHP Billiton is expected to upset the two big existing potash price cartels worldwide and give way to aggressive pricing.

The development, analysts say, could lead to an average hike of any-where between $30m-$60m/year on potash imports, adding to an already overbearing fertiliser subsidy bill. That back-of-the-envelope projection is based on contracted imports of 6mt for 2010-11, and an annual 5% hike in demand at home. In 2009-10, potash imports were to the tune of 5.3mt.

That, analysts say, only means that India may have to learn to produce without potash imports when prices skyrocket, as China did last year

Under the NBS or the new Nutrient Based Subsidy regime, if the price of nutrients like potash and phosphate rose dramatically, the govern-ment's subsidy will cover only a portion of the costs. The remainder of

the increase will have to be borne by farmers but new heights in pot-ash prices could make key ferts such as MoP and DAP unaffordable for farmers at home subsequently..

Post-NBS, suppliers to India had to restrict themselves to a potash price range between $350-$360/tonne (for 2010-11), for fear that de-mand may drop since farmers here would be unable to afford high prices for key ferts such as MoP and DAP. However, the price line may prove difficult for fertiliser companies to hold in raw material and in-put import prices skyrocket.

"If the bid succeeds in upheavals in the existing cartels, India will seri-ously have to deal with much higher potash prices and higher subsidy for the long term," fertiliser cooperative major Iffco’s CMD U S Awasthi told ET. India was especially hurt when the price of the crop nutrient spiked to over $1,000/tonne in mid-2008, from below $150 levels earlier in the decade. The price of potash retreated over the course of 2009 during the recesssion but is now in resurgence.

A handful of producers control the majority of the world's potash supplies. Two export consortiums___ BPC and Canpotex___currently account for almost 70% of global potash exports. Canpotex is a mar-keting group representing North American potash producers including PotashCorp of Saskatchewan, Mosaic Co. and Agrium Inc. With no potash of its own, it is the world’s biggest buyer imports potash-largely as potassium chloride-annually at around Rs 17,000/tonne, and sells it to farmers for Rs 4,000/tonne.

India’s most potent price advantage in the current situation, points out P S Gahlaut, MD of top potash importer Indian Potash Ltd (IPL), con-tinues to be its big buyer advantage. " Subsidy bill increase is inevita-ble for more reasons than one. Our annual demand for potash is up by 5%, our currency is weakening against the US dollar, and world prices are heading irrevocably northward.

Source : economictimes.indiatimes.com