Granular urea usage may not fall below domestic production capacity, says India Ratings

India Ratings and Research (Ind-Ra) has said the usage of conventional granular urea bags, which are suitable for both basal and foliar applications, will not fall below the total production capacity in the country. The production capacity is estimated at nearly 31 million tonnes per year. Despite the government’s efforts to promote the use of nano-urea and cut the overall consumption of chemical fertilizers through the PM-PRANAM scheme, conventional granular urea will be in demand, it said.

“The fertilizer consumption is growing at 6-7 per cent annually whereas the adoption of nano-urea will be gradual. There is no immediate possibility of the sales of conventional urea bags falling lower than the current capacities of domestic plants,” said Bhanu Patni, associate director (corporate ratings) at Ind-Ra.

Official data show that India’s urea import dropped 7 per cent to 7.04 million tonnes (mt) in FY24 from 7.58 mt in FY23. Urea production in last fiscal jumped 20.9 per cent to 31.41 mt from 25.98 mt and its sales are almost at par at 35.78 mt against 35.68 mt.

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Sector remains robust

Making a presentation on the fertilizer sector, Patni and Sidharth Aggarwal, an analyst with Ind-Ra, told media that demand in the sector remained robust in FY24, led by higher availability of funds with farmers due to various policy measures and stable farm gate prices.

Moreover, the sector over the past 2-3 years has seen supplementary budgetary allocations as and when the prices of key input materials were increased to enable raw material availability and economic viability with producers and importers, they said, adding this is likely to continue in FY25 as well. “This coupled with stability in natural gas prices and reduction in other key raw material (phosphoric acid, rock phosphate, sulphur) prices are expected to keep the budgetary allocation sufficient for FY25,” Ind-Ra’s analysts said.

They said credit profile of fertilizer companies will remain comfortable in FY25, driven by the government’s continued policy-level support to the industry by way of the healthy subsidy budget of ₹1.64-lakh crore. “This is backed by a moderation in the raw material prices across urea and nutrient-based fertilizers starting 4QFY23, coupled with the likelihood of a continued healthy demand,” the analysts said.

Dip in prices

Furthermore, for nutrient-based fertilizers, the average prices for input raw material have started to decline — phosphoric acid to $968/t from $974 (FY24 average), rock phosphate to $203/t from $213 and sulphur to $150/t from $335.

Led by the decline in natural gas price, Ind-Ra also estimates the subsidy requirement for the fertilizer sector to drop from the FY24 levels. Similarly, for the nutrient-based subsidy (NBS), Ind-Ra expects the announced levels in the interim budget to remain sufficient, given the decline in key input prices.

Despite the reduction in imports, fertilizer subsidy in the last fiscal reached nearly ₹2-lakh crore, which is higher than ₹1.89-lakh crore provisioned in the revised estimate (RE). The BE on NBS fertilizer subsidy in the current fiscal has been fixed at ₹45,000 crore.

Under the PM-PRANAM scheme, launched in June 2023, the Centre will incentivise States 50 per cent of the subsidised amount based on the quantity of reduction in the use of chemical fertilizers. For instance, if a State reduces consumption of conventional fertilizers by 0.3 mt, the saving on subsidy could be about ₹3,000 crore, out of which ₹1,500 crore would be paid by the Centre to the State as an incentive.

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