The Government plans to reduce the subsidy on phosphorous (P) and potash (K) nutrients in the wake of bearish global price signals for these fertilisers.
An Inter-Ministerial Committee is understood to have approved a proposal to bring down the per-kg subsidy on P from the existing Rs 32.338 to Rs 22 and from Rs 26.756 to Rs 25 in the case of K for the coming fiscal. On the other hand, the subsidy on nitrogen (N) is to be retained at the current Rs 27.153 a kg.
For di-ammonium phosphate (DAP), containing 18 per cent N and 46 per cent P, the proposed new nutrient subsidy rates translates into an effective total subsidy of Rs 15,000 a tonne, as against the existing Rs 19,763. Likewise, the total subsidy payable to companies selling muriate of potash (MOP, which has 60 per cent K content), would fall from Rs 16,054 to Rs 15,000 a tonne.
The new subsidy rates, to be applicable for 2012-13, are subject to Union Cabinet clearance.
“It's not a bad move as we expect global prices to ease considerably in the next couple of months. Lower subsidy payout by India will put further downward pressure on prices”, industry sources pointed out.
Landed prices of DAP had touched $677 a tonne (cost & freight Indian ports) in September. “Today, you can make even spot purchases at $ 590-600 and they could soon go below $550 a tonne”, the sources said.
Low global demand
One reason for this is low demand in Europe and even in markets such as Brazil and Argentina. That, in turn, in linked to lower crop prices. Since September 1, the most active contract of corn traded at the Chicago Board of Trade has fallen from $ 7.39 to $ 6.04 a bushel, while slipping similarly from $ 7.61 to $ 6.05 for wheat and from $ 14.35 to $ 11.84 in soyabean.
Global DAP suppliers such as PhosChem of the US and Morocco's OCP Group have sought to prop up prices by going in for strategic plant shutdowns. But that would be undermined by Saudi Arabia's Ma'aden Phosphate Company set to increase output from its newly commissioned DAP plant to 2.5 million tonnes (mt), from last year's one mt level.
The same goes for MOP, where the current import contracts by India are at $530 a tonne. “This, too, is bound to fall, as China is today self-sufficient in both DAP and to a great extent even MOP. Besides, unlike last year, there is not going to be huge demand from Brazil and other swing markets. So, it all depends on how much India buys”, the sources added.
Moreover, unlike last year, the stocks position in India is fairly comfortable now. On April 1, there will be inventories of 2.5-3 mt of DAP, one mt of MOP and 1.5 mt of NPK complexes with companies and dealers. “There is no urgency for India to enter the market now. The subsidy cuts would only help here”, the sources noted.
The other benefit of lower P and K subsidy is that it would reduce the requirement of steeply hiking administered retail prices of urea. A per-tonne subsidy cut of Rs 4,763 on 10 mt of DAP, Rs 3,000 on 11 mt of NPK complexes, and Rs 1,000 on 2.5 mt of MOP would confer savings of Rs 8,500 crore or so.
“These savings can be diverted towards urea and to that extent will limit the need to raise farmgate prices”, the sources added.