Falling subsidies set to hit India’s DAP output

17 September 2008 15:17  [Source: ICIS news]

LONDON (ICIS news)--The recent rapid fall in imported phosphate fertilizer prices in India could, thanks to the government’s decision to link subsidy payments to phosphate import prices, paradoxically hit domestic output, in turn fuelling demand for more phosphate imports, traders said on Wednesday.

 

Lower prices of DAP meant less was paid to domestic producers, hence output could fall, a trader said.

 

The subsidy paid to domestic phosphate producers is now based on import parity, linked to published prices of imported diammonium phosphate (DAP), which have seen a dramatic fall in prices of $200/tonne in the last two weeks, from $1,270-1,275/tonne CFR (cost and freight) to $1,070/tonne CFR, due to a global slowdown in demand.

 

“[The major importers] have crossed this [price] line without realising it,” said the trader, adding “the biggest beneficiary of all this could be the government”, as its subsidy bill would be less.

 

“The big Indian buyers have really upset the apple cart,” the trader said, adding that in their urge to drive import prices down, they might hurt domestic production.

 

In the short term, this had dampened interest for fresh DAP import tonnage, sources said.

 

Ironically, this comes at a time when domestic production, already hit by protracted negotiations over phosphoric acid feedstock shipments in the third quarter, could be significantly down on government targets for September and October.

 

“Around 500,000 tonnes of domestic DAP output is required for this period,” said the source.

 

“But we won’t get anywhere near this level,” the trader added.

 

Indian DAP production has consistently lagged behind target in recent years, due to producers facing financial constraints, a lack of feedstock or uncertainty over subsidy payouts.

 

One Indian importer and DAP producer declined to say whether this scenario would play out, although it acknowledged the potential was there for falling subsidy payments to hit domestic output.

 

“It’s too soon to say whether we will be affected,” the producer said.

 

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By: Mike Nash
+44 20 8652 3214

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