Indian subsidy cut on DAP could undermine demand, imports

24 January 2012 17:11  [Source: ICIS news]

LONDON (ICIS)--A subsidy cut on phosphate fertilizers proposed by the Indian government could dampen demand and undermine imports, market sources said on Tuesday.

Parliamentary approval is being sought to slice the diammonium phosphate (DAP) subsidy by Indian rupees (Rs) 4,763/tonne (€73.04/tonne, $95.11/tonne) to Rs15,000/tonne, as the country tackles the fall-out out from its currency devaluation.

The move, which would apply to the new fiscal year commencing 1 April, has been triggered by falling DAP prices on the international market that have weakened by around $80/tonne (€61.60/tonne) over the last two months.

It has prompted claims that the domestic retail price will be increased to meet the shortfall in costs incurred by importers.

Market sources fear the 24% cut to the subsidy will not be recovered against the price of imported DAP and the costs will be passed on to the farmer.

“The carry-over of DAP to 1 April means there must be an increase to the retail price to recover the Rs4,763 lost on existing inventory,” said one source.

Data published by the Fertiliser Association of India (FAI) for April–November 2011 lend support to assertions that farmers had spurned higher-priced DAP, turning to cheaper nitrogen phosphate and nitrogen phosphorus potassium (NPK) fertilizer blends for their autumn rabi season crops.

Domestic sales of DAP were down 21% on the same period of 2010, but sales of nitrogen phosphate and NPK blends were up by 11.5%.

Inventory carried over from rabi is reported to be high, and sufficient to dampen demand for fresh imports before the summer kharif season.

Cargoes of DAP imported under contract are currently priced at $677/tonne CFR (cost & freight), and spot cargo demand is expected to kick-start in the spring after a seasonal lull.

Sources say that selling DAP imported at higher prices into the domestic distribution chain will not be possible without inflating domestic retail prices.

There is already speculation that buyers will call for the contract price for imported DAP to be reduced by $127/tonne in the next round of price negotiations, set to start in March.

($1 = €0.77, $1 = Rs50.08, €1 = Rs65.21)

For more information on phosphates and other fertilizers visit ICIS pricing fertilizers
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By: Karen Thomas
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