The Hindu Business Line : Fertiliser importers lose out even in declining price situation

But not really so for importers of di-ammonium phosphate (DAP) and various fertiliser raw materials/intermediates, who avail themselves of Governmental ‘concession’ (subsidy reimbursement for selling below cost) on the basis of an import parity price (IPP) formula.

The last 3-4 months have seen huge declines in landed cost of most fertilisers and raw materials used in manufacture. Urea prices (cost & freight), which touched $850 a tonne in July-August, are now ruling at around $260 a tonne.

PRICES EASE

Likewise, DAP prices have eased from over $1,300 in October to $480-500 a tonne, while ammonia (imported from West Asia) has dropped from $900 in August to $180, phosphoric acid (from Morocco) from $2,300 in October to $1,200, and rock phosphate (from Jordan) from $450 in October to $300 a tonne. The most spectacular fall has been in the case of sulphur (mainly from Saudi Arabia and Canada) – from $850 in September to $55-60 a tonne!

However, these declines have not really worked to the advantage of importers such as Indian Farmers Fertiliser Cooperative (Iffco), Coromandel Fertilisers and Indian Potash Ltd.

These companies import either the end-product fertiliser (DAP) or the raw materials (ammonia and phosphoric acid) to make DAP or various complexes and sell them at maximum retail prices notified by the Government. The difference between the higher cost of import (or manufacture) and the retail price is, then, reimbursed as concession rate to the industry.

IPP FORMULA

In the current structure, the concession rate is linked to an IPP formula. In the case of DAP, this is determined by the average of low and high prices (published by Ferticon and the Fertiliser Market Bulletin) for the preceding month or the actual weighted average landed price for the current month, “whichever is lower”.

The published quotes are basically for US Gulf free-on-board, to which is added the notional freight cost from Tampa (Florida) to Mundra port in Gujarat.

In a rising market, the above formula suited the industry, but not so in the current situation where prices are declining every month. “From the time of signing an import contract to shipping and unloading at the port here, and further despatching it to the final sale point, it takes anywhere between 4 and 6 weeks. Any sharp fall in global prices during this period does not help us much,” an industry source said.

To illustrate, the imported DAP that was sold in November was originally contracted at a weighted average price of $1,123 a tonne C&F by various importers. As against this, the published price for the preceding month (October) was only $991 a tonne.

“Though my landed cost actually worked out to $1,123, I would be eligible for a concession only on the lower published price of $991. The difference is even more for sales taking place this month, where the contracted price was $1,100 a tonne, but the published price for November is only $666,” the source pointed out.

PRICING IMPACT

The impact of this difference works out quite substantial if one considers that November alone witnessed DAP imports of around seven lakh tonnes). On a difference of $130 a tonne (1123 minus 991), the extra cost borne by the importers due to the “whichever is lower” formula comes to $91 million.

“The formula did not cause problems in the earlier scenario of rising prices because the originally contracted prices turned out to be lower than the published prices then and concession was based on the lower contracted price” the source added.

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