India potash prices likely to rise around 22% by April - IPL

11 January 2012 15:40  [Source: ICIS news]

LONDON (ICIS)--The domestic price of muriate of potash (MOP) in India is likely to be hiked in the next two months as local companies are making huge losses on  sales of the fertilizer, the managing director of the country’s biggest importer Indian Potash Ltd (IPL) said late on Tuesday.

If foreign exchange levels remain stable, the increase in MOP prices is likely to be around Indian rupees (Rs) 2,500/tonne ($48/tonne), PS Gahlaut said. It is a 22% increase from the current price of Rs11,300/tonne ($218/tonne).

“We can take losses for maybe another two months but a price hike is inevitable for farmers,” Gahlaut said.

IPL makes a loss of Rs2,500 for every tonne of MOP that it sells, even with a government subsidy of Rs16,054/tonne ($309/tonne).

A surge in international prices of potash, and nearly 20% depreciation in the rupee over the last year, has led to the spike in costs. MOP was priced at Rs4,455/tonne ($86/tonne) in March 2011, and prices have surged over 150% since then.

Domestic demand has been hit as a result, and inventory levels are much higher than usual. Domestic potash stockpiles are around 2m tonnes, up over 70% from a year ago, according to importers.

Ports are choked up with only about half of the 5.5m tonnes of potash, contracted for the current fiscal year, having reached Indian ports. Shipments will now be delayed until April-June as Indian importers hope to reduce import costs.

A price hike will mean that domestic demand could fall further, analysts said.

“Huge demand destruction can be expected if prices jump again, which farmers are finding too expensive,” said Tarun Surana, research analyst at Sunidhi Securities & Finance Limited.

But he sees a “definite” need for a price hike, given that India will pay $530/tonne CFR (cost and freight) for MOP this quarter, compared to $470/tonne CFR in the previous two quarters, and as the rupee has devalued substantially against the dollar.

Importers see consumption demand falling by around 35% if prices are hiked. The impact could be worse if not for demand from the sugarcane sector, which cannot skip potash application, analysts said.

“Potash consumption has dropped alarmingly. The damage is serious. At that level (new price) there will be more demand disruption and absolutely no growth,” Gahlaut said.

India’s potash sales declined 58% to 975,200 tonnes in the seven months ended 31 October 2011, from 2.3m tonnes a year earlier, according to data from the Fertiliser Association of India.

($1 = Rs51.71)

For more on MOP visit ICIS pricing fertilizers

By: Deepika Thapliyal
+44 208 652 3214

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