18 August 2008 21:59 [Source: ICIS news]
NEW DELHI (ICIS news)--India’s new urea investment policy for expansion and greenfield projects would yield a return of 15-18% on equity for manufacturers, Standard and Poor’s Indian subsidiary CRISIL said on Monday.
“We believe the new investment policy will augur well for the sector,” the ratings major said. It said it believed the availability of natural gas as feedstock to urea industry would not be a constraint after December.
CRISIL also said it assumed long-term natural gas price of $8-9/million British thermal units (mbtu).
CRISIL analysed the policy that was approved by Cabinet Committee on Economic Affairs (CCEA) on 8 August.
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The policy allows companies to sell additional urea resulting from a revamp of existing units at 85% of the import parity price (IPP) with a floor price of $250/tonne and ceiling price of $425/tonne.
The sale of urea from expansion projects from would be allowed at 90% of IPP. The urea from revived mothballed public sector units would be recognised at 95% of IPP. The respective floor and ceiling prices would be same as in the case of revamps.
“We have observed a strong correlation between crude oil and urea prices,” said CRISIL Research head Sudhir Nair. “Crude oil prices are expected to decline sharply to around $84/bbl by 2012. Urea prices too are expected to decline to around $400/tonne - a level closer to the ceiling price fixed by the new fertilizer policy.”
Urea currently trades at $700/tonne in the international markets, against 10-year average price of $190/tonne and five-year average of $273/tonne.
The price of urea from
The government would also encourage the establishment of overseas urea joint ventures (JVs) by offering firm urea off-take contracts to JVs.
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