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Sector Focus : Fertilisers Industry

Fertilisers industry: Post-budget

Fertilisers: State of the industry (2000-01)

Fertilisers: Tariffs, prices and landed costs

	Tariffs (per cent)				Prices (Jan 2001)				Landed costs (Rs/tonne)
	Customs		Excise		Dom- estic		Intnl		Pre- bud	Post bud
	00-01	01-02	00-01	01-02	(Rs/ ton)		($/ton)
Urea	5.0	5.0	-	-	4,600	1	147	2	8,140	8,140
DAP	5.0	5.0	-	-	8,900	1	160	2	9,589	9,589
MOP	5.0	5.0	-	-	4,255	1	142		7,092	7,092
Ammonia	5.5	5.0	-	-	13,000	3	290		14,552	14,483
Phosphoric acid	5.5	5.0	-	-	NT		360		18,064	17,979
Sulphur	5.5	5.0	-	-	NT		40		2,007	1,998
Rock phosphate	5.5	5.0	-	-	NT		49	2	3,462	3,446
Naphtha	0.0	0.0	-	-	11,260		259		12,328	12,328
Fuel oil/ LSHS (for feed)4	0.0	0.0	-	-	6,790		164	2	4,664	4,664
Fuel oil/ LSHS (for non-feed)4	20.0	20.0	16.0	16.0	6,790		164	2	5,597	5,597
LNG5	5.0	5.0	16.0	16.0	NT		-		-	-

DAP: Di-ammonium phosphate; NT: Not traded
1 Farmgate price from February 29, 2000
2 Fob price
3 Selling price
4 Price per kl
5 CVD on LNG is nil in 2001-02.

Source: CRIS INFAC

• Consumption of fertilisers is expected to decline due to low rainfall/drought/floods in some parts of the country. The decline in consumption is expected to be higher in the case of phosphatic fertilisers.
• Domestic supply of phosphatic fertilisers is expected to increase significantly. In the case of urea, a provisional reassessment of capacities was done by the Government, and a ceiling of 100 per cent of reassessed capacity was imposed on production.
• In the Union Budget 2000-01, the selling price of urea was increased by 15 per cent, and that of DAP by 7.2 per cent.
• During the April-September 2000 period, margins of domestic DAP producers increased, due to an increase in the selling price and a decline in the cost of raw material. Margins on imported DAP declined, due to a reduction in the subsidy.

Fertilisers: Budget impact

Impact factors

Company name	Impact	Impact factors
Chambal Fertilisers & Chemicals Ltd.	Neut	A,C,D
(10.70, 11.05)
GNFC	Neut	A,C,D
(30.60, 29.40)
GSFC	Neg	A,B,C,D,E
(28.15, 26.55)
Nagarjuna Fertilizers & Chemicals Ltd.	Neut	A,C,D
(9.40, 9.20)
Tata Chemicals Ltd.	Neut	A,D,F
(51.60, 51.05)
Zuari Industries Ltd.	Neut	A,B,C
(27.70, 27.05)

Notes:
Figures in brackets indicate the closing share prices, on February 27, 2001 and February 28, 2001, respectively.
neg= negative neut= neutral

Source: CRIS INFAC

A: In the case of urea, unit wise retention price will be replaced by a 'Group Concession Scheme'. Concession for urea units based on naphtha/FO/LSHS will be linked to international prices of feedstocks. The impact on the industry would depend on the 'Group Concession', which is yet to be announced.

B: Removal of surcharge of 10 per cent on customs duty is expected to reduce the cost of imported raw materials (ammonia, phosphoric acid, sulphur and rock phosphate) for phosphatic (SSP) and complex fertilisers (DAP). However, margins will be dependent on the final concession on these fertilisers.

C: Urea is exempt from the increase in rail freight. Increase in rail freight is expected to have a negative impact on other phosphatic (SSP) and complex fertilisers (DAP), if the concession on these fertilisers are not increased in line with the increase in the freight cost.

D: The reduction of surcharge on corporate tax, from 13 per cent to 2 per cent and the expected decline in interest rates, is expected to have a positive impact on producers.

E: Domestic price of caprolactam is expected to decline, due to an expected decrease in the landed cost of caprolactam with the reduction in the effective customs duty, from 32.6 per cent to 24.8 per cent. There is likely to be a negative impact on GSFC, since caprolactam accounts for around 18 per cent of total sales.

F: Domestic price of soda ash is expected to decline, due to an expected decrease in the landed cost of soda ash with the reduction in the effective customs duty, from 44 per cent to 24.8 per cent. However, the decrease in the landed cost is expected to be marginal, due to the prevailing anti-dumping duty. There is likely to be a marginal negative impact on Tata Chemicals, since soda ash accounts for 33 percent of total sales.

Rediff-CRISIL Budget Impact Analysis
Budget 2001

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

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