The Hindu Business Line : Fertiliser cos break phosphoric acid supply cartel

New Delhi, Feb. 5 Indian fertiliser companies claim to have broken a ‘cartel’ of phosphoric acid suppliers who till recently were not willing to offer this crucial raw material for less than $1,200 a tonne cost & freight (c&f).

According to industry sources, at least two companies have in the last few days managed to strike deals for import of phosphoric acid – used in the manufacture of di-ammonium phosphate (DAP) – at $730-760 a tonne. They include Coromandel Fertilisers (Murugappa Group) and the K.K. Birla Group-controlled Zuari Industries Ltd.

Contract size

Coromandel is learned to have contracted 25,000 tonnes each from Groupe Chimique Tunisien (GCT) of Tunisia and Foskor of South Africa at these rates, while Zuari has concluded a similar deal with Morocco’s OCP Group.

“The $730 price is on a cash payment basis, while $760 is against 150-day credit,” the sources said, claiming that “the cartel has finally been broken”.

Prices spurt

During 2007-08, Indian DAP manufacturers had jointly negotiated a price of $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.

For April-June 2008, the companies had to shell out $2,200-2,300 a tonne, before easing somewhat to around $1,985-2,100 and $ 1,200-1,310 in the subsequent two quarters.

Plants shut

“They were refusing to budge below $1,200 levels, with OCP and GCT even temporarily shutting down plants in order to keep global supplies tight,” the sources pointed out.

But what has apparently forced the suppliers to climb down is a recent contract for import of 12 lt of DAP by the Indian Farmers Fertiliser Cooperative (Iffco) and Indian Potash Ltd (IPL). The two have inked the import deal with PhosAgro of Russia and the Swiss fertiliser trader, Ameropa at a benchmark price of $380 a tonne, c&f.

Lacking logic

“There was no logic in demanding a price of $1,200 a tonne for phosphoric acid, when the final product is being imported for $380 a tonne,” the sources noted. For every tonne of DAP manufactured, fertiliser units use roughly 460 kg of phosphoric acid and 220 kg of ammonia. At current global DAP prices, phosphoric acid should correspondingly be available for not more than $700 a tonne, they added.

Benchmark V reference

The 12 lt DAP import deal by the Iffco-IPL combine is linked to both a “benchmark price” of $380 a tonne as well as a “reference price” based on average monthly quotes published in the UK-based Fertilizer Market Bulletin.

If the “reference price” (the published rate two months prior to the delivery month) is lower than the “benchmark price”, the imports would be done at the actual price (i.e. below $380).

If the “reference price” is between $380 and $480 a tonne, the importers would be eligible to a 30 per cent discount on the difference vis-À-vis the “benchmark price”, subject to a maximum of $30 a tonne.

If the “reference price” is between $480 and $580 a tonne, the discount rate would be lower at 25 per cent subject to a cap of $40. In the event of the “reference price” shooting up beyond $580, the discount rate would be 20 per cent and subject to a cap of $50 a tonne.

“The imported material, mainly of Russia and Ukraine origin, will be delivered between April and February next year,” the sources informed,