Budget 2012: Urea makers rue another wasted opportunity

Fertilizer manufacturers hoping for urea price decontrol saw the pre-budget speech gains in share prices erode fast as the finance minister offered them little solace.

The government’s push to promote Single Super Phosphate (SSP) against the heavily subsidised di-ammonium phosphate, which is likely to prove a cushion to the growing subsidy burden, however resulted in gains for SSP makers. Rama Phosphate and Liberty Phosphate, gained nearly 9% and 3% respectively immediately after the budget speech.

Basic customs duty on a few soluble fertilizers and liquid fertilizers, other than urea, has been reduced from 7.5% to 5% and from 5% to 2.5% respectively. Also, complete exemption from basic customs duty will be provided to new fertilizer projects, a move that will encourage new entrants and push existing players to set up new plants.

Last year, the government had announced NBS for non-urea fertilizers such as potassic and phosphatic fertilizers. Companies were allowed to increase the maximum retail price of these fertilizers charged to the farmers. Following the decontrol of non-urea fertilizers, prices of these fertilizers have increased significantly, thereby increasing the urea consumption substantially on account of its lower price.

Urea manufacturers remain under pressure due to higher input costs as well as the controlled retail price. This is also expected to put pressure on the subsidy burden of the government. The total urea consumption in the country, estimated at 27 million tonnes (MT) annually, is more than half of the total fertilizer requirement.

However, domestic urea production stands at 21 MT, necessitating imports which are much costlier. The sector has seen no fresh investments in the past 13 years mainly because of a lid on prices.

Stocks of companies such Chambal Fertilizers, National Fertilizers, Rashtriya Chemicals and Fertilizers, and Nagarjuna Fertilizers, were quick to pare their pre-budget gains.