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Fertilisers: Low volume off-take in the kharif season

Sharekhan | 05 Oct, 2011  | Follow Author | Add to my Favourites 
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Key Points:

- The aggregate sales volume for the 13 leading (mostly listed) fertiliser companies saw a decline during the recent kharif (July-September) season. The total sales volume declined by 16.8% as compared to last year, largely due to significantly lower imports this time around. The imports declined sharply due to extremely high prices globally and the deadlock between the Indian government and leading global complex fertiliser companies (specifically potash based fertiliser companies).

- In terms of locally produced fertilisers, the volume offtake of complex fertilisers dropped by 21.6% (tracking the aggregate of 13 leading companies) whereas the decline in urea?s sales volume was limited to just 5% in the kharif season. The consumption of non urea fertilisers has declined mainly due to the non availability of raw materials and increase in price of non urea fertilisers. The supply of di-ammounium phosphate (DAP) and muriate of potash (MOP) was also tight internationally which has resulted in a steep increase in price, thereby affecting domestic consumption.

- Urea's sales volume for the kharif season (July to September) has decreased by 5% year on year (YoY). There was a decline in the sales volume of urea because its production was lower due to shortage of gas. We believe that going forward volume of urea will increase which will ultimately help pure urea manufacturers like Chambal Fertilisers and Nagarjuna Fertilisers. Any increase in the output of domestic gas will be allocated to fertiliser manufacturers as the government has listed the fertiliser sector as a priority sector and that too above power.

- Overall, the decline in imported non urea fertilisers during the current kharif season was of 40% YoY. The steep decline was mainly due to lower import of MOP and DAP. The import of NPK fertilisers has increased significantly as complex fertilisers are relatively easily available compared to MOP and DAP. Farmers have also started using complex fertilisers other than MOP and DAP due to growing awareness about the benefits of NPK fertilisers. We believe that there will be a healthy growth in the consumption of NPK fertilisers, which will have a positive effect on indigenous NPK manufacturers. This shift towards a higher use of NPK fertilisers will benefit manufacturers like Coromandel International.

- The consumption of DAP during the current kharif season has declined by 23% YoY as its imports declined. The availability of DAP was constrained in the international market, hence the decline in imports. Higher than expected demand and supply side constraints have kept the price of DAP strong. Currently the price of DAP is ruling firm at $665 per tonne.

- There was a sharp decline of 89% in the consumption of MOP during the current kharif season mainly due to its lower imports. Imports were lower due to a dead lock between Indian importers and global suppliers of potash over pricing. India imports 100% of its requirement of MOP (of 60 lakh tonne per annum) as it does not have the raw materials required to manufacture MOP.

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