Financial Daily from THE HINDU group of publications
Wednesday, Sep 29, 2004
Tata Chemicals in talks with IOC for LNG supply
Shyam G. Menon
Mumbai , Sept. 28
TATA Chemicals, which was seeking a long-term supplier of liquefied natural gas for its fertiliser manufacturing operations, may tie up with Indian Oil Corporation for the same.
The company's 2003-2004 annual report, while indicating likely growth in fertiliser consumption this fiscal thanks to the rains, said, "The supply of natural gas continues to be inadequate, thereby forcing your company to use naphtha - a costly fuel.
"Notwithstanding this, with imports of LNG having commenced along with major gas finds within the country, your company is confident that it will be able to enter into a contract with an LNG supplier to meet its long-term requirements."
When contacted last week, a senior company official said Tata Chemicals had been getting LNG from IOC on an ad hoc basis since July. This arrangement could graduate to a long-term understanding mentioned in the company's annual report.
"We are in serious discussions with IOC," the official said. The Rs 2,544- crore Tata Chemicals (FY04 net profit: Rs 220.53 crore) needs an estimated 0.5 million standard cubic metres of LNG per day for its operations.
The company, along with other fertiliser manufacturers, is now breathing easy after the Government recently approved the import price for phosphoric acid.
"Phosphoric acid prices for the current year are yet to be approved and the industry is extremely concerned about a major disruption in the availability of DAP and MOP, both for the kharif and rabi seasons if there is a further delay or a change in the negotiated prices," Tata Chemical's annual report said.
That observation was atop a fiscal in which the prices of key raw materials including ammonia, sulphur and phosphoric acid went up. In fact, raw material cost was a worry when the company reported its FY04 results in June.
Hind Lever Chemicals Ltd brought into the Tata fold businesses such as sodium tri poly phosphate (STPP, used in detergents), DAP and complex fertilisers. This newly acquired company was hit by the steep price rise in ammonia and phosphoric acid.
Despite the STPP business weathering cost pressures to an extent courtesy its own phosphoric acid production, the DAP business was impacted by rising prices, particularly that of ammonia from $140 to $350/tonne.
Hind Lever's bottom-line dipped as a result.
Further, on July 23, while reporting a reduced profit after tax of Rs 45.64 crore for the quarter ended June 30(net sales/income from operations, however, increased to Rs 520.42 crore), Tata Chemicals cited a dip in profit from operations to Rs 111.35 crore from Rs 117 crore.
"Operating profits are lower due to higher input costs such as phosphoric acid, coke and ammonia and the increase in freight costs," its official statement said.
The company's annual requirement of phosphoric acid and ammonia is in the region of 2,40,000 tonnes and 1,20,000 tonnes, respectively. Given their price-flux globally, viability of backward integration or alliances to secure cost-effective supply is being explored.
"The Government's decision is a source of comfort," the official said on the eventual approval of phosphoric acid's import price. What is encouraging is that the approved price is closer to the acid's global price than before.
But dampening the cheer marginally is the fact that the new pricing holds good for only another six months by when the fiscal will end.
"It is valid till March 2005," the official said, conceding concern on that count.
Besides, ammonia prices continue to rule high in the range of $290-$300 per tonne.
With agricultural nutrient ratio gradually changing from its strong nitrogenous fertiliser bias, Tata Chemicals was anticipating good prospects in the DAP segment. But, will input costs agree?
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