Indian urea importers advised caution on pricing, demand uncertainties

26 June 2014 11:32 Source:ICIS News

KOLKATA (ICIS)--Indian urea importers should be cautious in committing transactions over the next few months in view of high stocks, pricing uncertainties and possible low demand from tardy progress of monsoon rains, an official in India's fertilizer department said on Thursday.

The caution is warranted as there has been a spike in imports over the last two months, and the government does not want importers to be saddled with high stocks during the current food grain sowing season, he said.

The risk of stock build-up was high considering the possibility of fall in fertilizer usage, with most forecasts predicting a `below normal’ monsoon rainfall across the country, he added.

Urea imports during the last two months spiked to 872,000 tonnes in April and 618,000 tonnes in May this year, according to government data. This was in contrast to the previous three months, when imports were recorded at 263,000 tonnes in January, 129,000 tonnes in February and 161,000 tonnes in March.

At the same time, the India Meteorological Department (IMD) in a forecast released on Tuesday reported a “37% deficit in cumulative rainfall since 1 June  across the country and monsoons yet to progress central and western India.”

Urea importers would also need to be cautious against risking a loss by committing import transactions at too high a price, even though the government was planning a revision in domestic retail urea prices to reduce the subsidy bill, the government official said.

There has been talk that the Indian government is looking to raise the price of urea by 10% to contain subsidy costs but fertilizers minister, Ananth Kumar, last week ruled out any such increase and said the government’s focus would  be on reducing the production cost of urea.

Indian domestic urea retail price is pegged at Indian rupees (Rs) 5,360 ($89.18) per tonne, up 10% than the price last fixed by the government in 2010. The difference between the retail price and production or import price was paid as subsidy from the government’s annual budgets.

Declining to comment on specific import contracts, the official however said that government import agencies would be under no obligation to float new tenders in case lack of response at benchmark tender price.

It may be mentioned that State Trading Corporation (STC), which closed on a urea import tender on June 18, was able to import around 300,000 tonnes under the tender against market expectations it would buy up to 1m tonnes. STC got limited response at the tender price of $266 per tonne (Cost & Freight) CFR as most Chinese suppliers refused to back traders at such a "low" tender price.

Indian urea imports primarily take place through government-owned trading firms such as STC, MMTC Limited and India Potash Limited in the form of tenders, to meet domestic shortage of the fertilizer.

Domestic urea demand was estimated at 33m tonne/year while production averaged at 22m tonne/year with balance met through imports, according to figures of department of fertilizers.

($1 = Rs60.10)

By Ajoy K Das