Moderation in input prices to reduce fertilizer subsidy burden on govt: Report
2 min read . Updated: 25 Apr 2023, 06:13 PM IST
Premium- The moderation in the prices of raw materials across urea and nutrient-based fertilizers starting 4QFY23, along with the GoI's focus on increasing farmer income, will further support the industry.
New Delhi: India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the Indian fertilizer sector for FY24, as the government continues to support the industry through a healthy subsidy budget of ₹1,751 billion.
According to the report, the moderation in the prices of raw materials across urea and nutrient-based fertilizers starting 4QFY23, along with the Centre's focus on increasing farmer income, will further support the industry.
The sales in the fertiliser sector grew by 15% YoY from April 2022 to February 2023, driven by higher availability of funds to farmers due to various policy measures and stable farm gate prices maintained by fertiliser companies in response to the higher subsidy allocation during FY23. Additionally, the sector received a supplementary budget allocation of ₹363.3 billion in March 2023, leading to a lower-than-expected subsidy outstanding compared to earlier expectations.
Ind-Ra expects the average pooled gas price to moderate to around $12-15/MMBtu in FY24 due to various factors such as moderation in the Henry Hub Prices and corresponding linked imported LNG, a decrease in crude oil prices leading to lower prices on the term LNG contracts based on the slope of Japan Crude Cocktail/Brent, cabinet approval of the Kirit Parekh Committee leading to a moderation in the administered price mechanism prices, and cooling off of the spot LNG prices.
Moreover, for nutrient-based fertilizers, the average prices for input raw material such as phosphoric acid, rock phosphate, and sulphur have started to decline from 4QFY23, declining to $1,000/t, $250/t, and $150/t, respectively. This decline in natural gas price is expected to reduce the subsidy requirement for the sector from FY23 levels.
During FY23, the proportion of subsidy in total revenues increased substantially for urea players and nitrogen, phosphorus, and potassium players. However, the proportion of revenue earned is expected to be made up from the subsidy, and Ind-Ra does not anticipate any changes to farm gate prices.