The Hindu Business Line : Fertiliser cos, phosphoric acid suppliers in pricing row

New Delhi, Jan. 4 Indian fertiliser companies are engaged in a battle of nerves with overseas suppliers of phosphoric acid over pricing of this crucial ingredient used to manufacture di-ammonium phosphate (DAP).

The suppliers – mainly OCP Group of Morocco and Groupe Chimique Tunisien (GCT) of Tunisia, besides Foskor of South Africa and Industries Chimiques Du Senegal of Senegal – are reportedly demanding $1,200 a tonne cost & freight (c&f). The importers – Indian Farmers Fertiliser Cooperative, Coromandel Fertilisers, Gujarat State Fertilisers Company and Zuari Industries – are not willing to pay more than $650 a tonne.

For 2007-08, Indian companies had jointly negotiated $566.25 a tonne c&f. But as international prices rose in tandem with other commodities, the suppliers – who account for bulk of the 22-25 lakh tonnes (lt) of yearly phosphoric acid shipments into the country – began jacking up rates.

Price push

During April-June 2008, Indian companies had to shell out $2,200-2,300 a tonne, which then eased to around $1,985-2,100 and $1,200-1,310 a tonne in the subsequent two quarters.

“They are not prepared to bring them down further, whereas we are saying that anything above $650 is not acceptable given the recent all-round slump in commodity prices,” an industry source said.

The bigger suppliers – OCP and GCT, which produce an estimated 35 lt and 15 lt, respectively, every year – have even shut down their plants since November.

“They want to keep global supplies tight so as to maintain high prices. But this is not sustainable when the final product (DAP) is currently quoting at $390 a tonne, free-on-board US Gulf. After factoring in freight, it comes to $420 a tonne, c&f, against the peak $1,300-plus levels of September,” the source pointed out.

Cost per tonne

Indigenous manufacture requires 460 kg of phosphoric acid and 220 kg of ammonia for every one tonne of DAP. Taking a landed cost of $1,200 a tonne on phosphoric acid (as demanded) and $150 a tonne on ammonia and adding five per cent customs duty on both, the cost of imported ingredients for every tonne of DAP works out to nearly $615 a tonne.

“If you also include conversion costs (water, power, sand, dolomite, sulphuric acid) of $60 a tonne, the cost of manufacturing DAP at the port comes to $675 a tonne. The imported DAP costs only $441 a tonne, after adding five per cent duty,” the source added.

Made in India

What about manufacturing phosphoric acid indigenously using imported rock phosphate and sulphur? Depending upon quality, 3.1 to 3.8 tonnes of rock phosphate is processed for each tonne of phosphoric acid, with import prices currently ranging from $190 to $235 a tonne c&f.

Further, one tonne of sulphur ($60 a tonne c&f) is required.

Adding five per cent customs duty on both and conversion charge of $100 a tonne, manufacture of phosphoric acid (using 3.8-tonne grade rock) would cost roughly $920 a tonne at the port.

Even this is cheaper than importing acid at $1,200 a tonne, the source added.