January 30, 2012
India set to boost fertiliser output
The nitrogen groups of India will end a decade-long purdah on new complexes which has made the country into a huge fertiliser buyer, responsible for nearly one-fifth of its global purchases.
India''s government will this year announce a series of measures "which will help kick-start new investments in urea", Salil Garg, a director at Fitch Ratings, said.
The initiatives could see a sector which has undertaken "no major capex" since 2002 add 10.1 million tonnes of urea capacity by 2017, through a mixture of refurbishing closed plants, expanding existing ones and construction of facilities on greenfield sites.
Such a programme, at a cost of INR400 billion (US$8.1 billion) at current price, would lift output to 33.7 million tonnes, enough to return the country to self-sufficiency in urea, the ratings agency said.
India''s imports have ramped up since 2004, when the lack of investment at a time of rising agricultural production began to tell, lifting annual imports to well over 6m tonnes by 2007, around which level they have remained.
Many fertilisergroups have already announced expansion plans, with Gujarat State Fertilizers and Chemicals planning urea capacity of one million tonnes a year in the western Indian state.
Indian Farmers Fertilizer Co-operative is mulling investment of INR40 billion (US$0.80 billion) a year on boosting urea operations, while Tata Chemicals in April unveiled a joint venture with Singapore-based Olam International to manufacture urea in Gabon, west Africa.
However, the success of the expansion programme is dependent on overcoming a shortage of natural gas, a source of power and carbon, despite the government giving priority to the fertiliser sector in energy allocations.
Although there is sufficient gas to meet current needs, demand could balloon by more than 70% over the next five years if the paper plans for expansion are realised, and less efficient naptha and oil-powered plants are concerned to gas as well.
No new Indian gas sources have been found over the last five years, and imports are restrained by a lack of infrastructure to "limited quantities", Fitch said.
Furthermore, the ratings agency acknowledged the threat of government support, such as tax breaks for new plants, proving inadequate or delayed.
Meanwhile, hopes for self-sufficiency in urea could be dented by a continued failure to bring urea under the same subsidy regime as applied to other nutrients, and which passes on to farmers some of the impact of changes in world market prices.
Farmers have used a "disproportionately high" quantity of urea, compared with other nutrients, because of the regime.
"Fitch expected changes in urea subsidy policy so that part of the price rise in urea is passed on to customers, and slowly urea prices start to reflect the dynamics of commodity prices," the ratings agency said.
Extra urea capacity in India would follow a period when expansion has been focused on exporting countries, largely in the Middle East and North Africa, keen to exploit energy reserves by creating higher-value products.
Fertiliser giant PotashCorp has forecast that "new export-oriented plants in Algeria, Iran, Qatar and Northern Africa are expected to provide most of the urea capacity additions, outside of China, in the medium term".
PotashCorp has forecast that, including some 2.6 million tonnes delayed from 2011, this year will see some eight million tonnes of capacity for exportable urea come to market in the low-cost gas regions.