India likely to save as much as Rs.1,863 crore in potash imports
India is likely to spend $300 million less in 2014-15 than the $1.45 billion it will pay this fiscal year
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New Delhi: India may save as much as Rs.1,863 crore in potash imports in the next fiscal year, as the price of the fertilizer has fallen drastically after a global cartel collapsed and China struck a deal with the top producer at a sharply lower rate, potentially setting a reduced benchmark for India.
India imports some 3.5 million tonnes (mt) of potash every year. The rates India pays are usually $15-20 dearer than the rates for China, according to P.S. Gahlaut, managing director of India Potash Ltd, the state-owned firm which imports the soil nutrient.
OAO Uralkali, the world’s largest potash producer, has agreed to supply 700,000 mt of potash to China at $305 a tonne under a contract for the first half of 2014, Bloomberg news agency reported on 21 January. China earlier paid an average $400 a tonne for potash.
“We should expect a price anywhere between $320-325 per tonne,” said Gehlaut.
Even if India strikes an import deal at $325 per tonne, it will likely spend $300 million less in 2014-15 than the $1.45 billion it will pay this fiscal year. At Friday’s exchange rate, this saving amounts to about Rs.1,863 crore.
The government may use this opportunity to reduce its subsidy burden. At present, the subsidy outlay on potash is about Rs.4,000 crore, according to Satish Chander, director general of Fertilizer Association of India, an industry lobby. To be sure, the potential savings of the treasury or reduced retail prices might not immediately be in the offing, an expert said.
“Looking at the recent past, profitability of the potash industry hasn’t been very high and they (companies) may not pass on the price reduction immediately,” said Sanjay Jain, director of Taj Capital Partners Pvt. Ltd, an investment firm that has interests in the fertilizer sector.
Prices might actually increase in the short term if the government reduces the subsidy component, which it is not likely to risk in an election year, Jain said.
Potash, along with all fertilizers except urea, comes under the government’s nutrient-based subsidy policy through which it hands out a fixed subsidy but the retail price is left to the market to decide.
Between April and January, India imported close to 3.1 mt of potash. Of this, around 2.5 mt was imported at $427 a tonne and the remaining is being imported at $369 a tonne, according to an official of Coromandel Fertilizers Ltd, who requested anonymity.
This new price was re-negotiated by India on 1 October, citing a weaker rupee, timing it with the break-up of Uralkali’s pricing cartel with Belaruskali, the state-owned potash producer of Belarus, in July. The Indian currency has lost 14.36% against the dollar in the past one year.
“It’s good that the (global) prices have fallen,” an official of the fertilizer ministry said on condition of anonymity. Companies selling the fertiliser should now reduce prices, he said. The industry is more cautious in its outlook, which will depend on the new subsidy rates. The inter-ministerial committee that decides the rates has already met, said S.S. Nandurdikar, managing director of Paradeep Phosphates Ltd. The new subsidy rates are expected to be released soon and will be effective from 1 April.
The government currently gives a subsidy of Rs.11,300 per tonne of muriate of potash, a widely used fertilizer that improves root strength and disease resistance of crops. The soil nutrient is also used in different ratios with other soil nutrients like nitrogen, phosphate, sulphur and zinc to make complex fertilizers.
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