India announces 33% cut to phosphate fertilizer subsidy

02 March 2012 14:19  [Source: ICIS news]

LONDON (ICIS)--The nutrient-based subsidy (NBS) applied to phosphate fertilizers sold in India will be cut by almost 33% from 1 April, government officials announced on Friday.

Officials at the Ministry of Chemicals and Fertilizers claim the subsidy cuts, which also apply to potassium fertilizers, are necessary to reduce its bill for the next fiscal year by 20% and are prompted by the devaluation of the local currency.

The current subsidy of Indian rupees (Rs) 32.338/kg ($0.66/kg) of phosphate nutrient contained in phosphate fertilizers is cut by 32.6% to Rs 21.8/kg of nutrient for the 2012-2013 fiscal year.

The table below shows the subsidy changes for all phosphate fertilizers:


Nutrient-Based Subsidy for Phosphate Fertilizers




% change


Rs 19,763

Rs 14,348


DAP Lite

Rs 18,573

Rs 13,432



Rs 19,803

Rs 13,976



Rs 14,875

Rs 10,028



Based on the content of phosphate in one tonne of fertilizer, the subsidy for the principal compound diammonium phosphate (DAP) is reduced by 27.4% to Rs 14,348/tonne, which is equivalent to a $110.14/tonne cut.

The reduction reflects the sharp $80–100/tonne decline in DAP export prices seen at the end of last year and is a strong signal that Indian buyers will push hard to drive the contract price for DAP down by a similar value during imminent negotiations.

Talks are set to begin between US phosphate fertilizer producer PhosChem and Indian Farmers Fertiliser Co-operative Ltd (IFFCO) on re-negotiating the contract price agreed in September at $677/tonne CFR (cost & freight).

The current NBS was set last March to ensure importers recoup the costs of buying at high prices and reduce the risk of incurred expenses being passed down the distribution chain increasing retail prices.

Although the contract price nets back to the benchmark US Gulf export price at around $625/tonne FOB (free on board), the spot market settled in the $510–517/tonne FOB Tampa range last week.

The market has shifted to the buy side this year and the announcement of the new NBS, which indicates an import parity price of $480/tonne CFR, will strengthen their arguments for a lower contract price.

Bolstered by a weaker market and settling first quarter contracts for raw material phosphoric acid at $120/tonne below Q4 prices, the buy-side also claims inventory levels are higher than usual because of lower DAP offtake last season.

“India is in the driving seat,” said one trader. “There are offers of spot DAP at $540–550/tonne CFR but nobody is buying.”

Suppliers are likely to bide their time and observe global prices although there are indications that they will push for a price above $600/tonne CFR.

There is also talk that the Maximum Retail Price for DAP, set as a guideline by the Indian government, will feature strongly in calculating and negotiating a parity import price for contract cargoes.

“A reduced NBS will lead to retail prices being increased,” said one market source. “If farmers do not accept and buy at the higher prices, this will lead to demand destruction.”

The Indian government asserts the move to cut the subsidy is part of a wider policy to reduce dependence on phosphate fertilizers and encourage farmers to buy cheaper nitrogen-phosphate and nitrogen-phosphate-potassium blends.

DAP imports covering the summer kharif season and autumn rabi season totalled around 7m tonnes of DAP, which accounts for almost 50% of globally-traded DAP.

($1 = Rs49.17)

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By: Karen Thomas
+44 208 652 3214

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