Kharif season continued its journey on the good note that it started with, as the latest statistics released by the National Fertilizer Development Centre, depict healthy pattern in urea off-take. The monthly urea off-take for May 2018 slid by 5 percent year-on-year, but the Kharif off-take to date is up by a healthy 13 percent year-on-year.
The urea off-take amounted to almost half a million tons in May 2018, taking the 5MCY18 off-take to 2.1 million tons, up by a significant 29 percent year-on-year. The 5MCY18 urea off-take is also the highest in four years, as low urea prices amid continued subsidy has ensured better fertilizer application. Recall that urea off-take has recorded consecutive year-on-year increase in four of the five months in the calendar year so far, which is also a first.
Urea prices have stayed north of Rs1400 per bag, inching up by 3.5 percent month-on-month to Rs1471 per bag. The average urea prices for 5MCY18 have gone up by 6 percent year-on-year. The subsidy on urea has been continued as the GST has been slashed in the budget. This may be net neutral for the farmers. But it has created a circular debt like situation for the, local fertilizer manufactures, and they do no taper very happy. The payment delays on account of subsidy coupled with that on account of GST could potentially hurt the manufactures’ balance sheets, undoing the positive impact of better gas availability and smooth production.
In the international market, urea prices have also continued to follow the bullish trend that started back in January 2018. The international urea price has averaged $280 per ton during 4MCY18, almost 27 percent higher than the same period last year. With global inventories getting tight and oil prices on the rise, most observers expect urea prices to settle on the higher side in the near future.
The gas prices are likely to be increased from July onwards, and that could mean added feedstock price for manufacturers. These remains to be seen whether the government decides to cross subsidize. Should the fertilizer prices go further up, there is a high chance the off-take momentum may die down. Even in best case scenarios, no one expects the total yearly urea application to cross 6 million tons.
That said, pricing is not a huge concern, being a pass through items at most times. The government would do well to adjust the input and output taxes, in a way that smoothens the cash flow problems of the manufactures.
Much has not changed in terms of farm yields for many years. On the brighter side, DAP application has continued to improve. Although, it is still far from the ideal level of balanced fertilization, the NP ratio today is much improved from five years ago, thanks mainly to much reduced DAP prices via subsidy, and increased awareness amongst farmers.
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