Stocks

Fertiliser cos stock look up on pricing hopes

Suresh P. Iyengar Mumbai | Updated on June 30, 2011

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Clearance of proposal will help producers to pass on cost





Expectations of the Cabinet Committee on Economic Affairs (CCEA) meet on Thursday clearing a proposal that provides freedom to fertliiser companies fix retail price of di-ammonium phosphate (DAP) renewed buying interest in fertiliser company stocks on the exchanges.

Most of fertiliser company stocks such as Nagarjuna Fertilisers and Chemicals, Rallis India, Deepak Fertiliser and Petrochemicals Corporation, Chambal Fertilisers and Chemicals, National Fertilisers and Rashtriya Chemicals and Fertilisers ended the day on a positive note.

The CCEA meeting held last week had to postpone a decision on the issue due to absence of the Union Chemical and Fertiliser Minister, Mr M.K. Alagiri.

Measures

In a bid to arrest the soaring fertiliser prices, the Government in April capped DAP prices at Rs 11,350 a tonne. Companies were constrained by the price hike limitation and soaring operational cost. Besides, the sharp jump in international prices had hit imports.

The country imports about eight million tonnes of DAP annually from the US, Morocco, Jordan and China to meet the domestic demand of 11-12 million tonnes. DAP prices in the international markets had soared to over $600 (Rs 27,000) a tonne from $460 (Rs 20,700) level about seven months ago.

With the international prices rising and the cap on retail prices in India, fertiliser companies had virtually stopped imports in last two months fearing losses due to disparity in prices, said an analyst.

Proposal

The Fertiliser Ministry had moved a proposal to the Cabinet on lifting the cap on DAP pricing policy in light of soaring DAP prices globally and shortage in domestic market.

“Though chemicals and other key raw material prices have come down of late, it may not result in lower fertiliser prices as most of raw material by the companies were contracted at old rates. The clearance of the proposal by the Cabinet will give the much needed freedom to pass on the incremental cost to the end users,” he said.

Various raw materials are used to produce fertilisers derived from nitrogen, phosphorus and potassium. A method of synthetic production requires natural gas and air when ammonia is used as the nitrogen source in a fertiliser. The phosphorus component is made using sulphur, coal and rock phosphate. The shortage in supply of gas at a fixed price by domestic producers has led to costlier imports, pushing up the cost of production.

In March, Mr Alagiri had written to the Union Petroleum Minister, Mr S. Jaipal Reddy, asking him to direct his ministry to “review the status of reduction in supply of gas to the fertiliser sector so that the supply of gas is not adversely affected and the adverse impact on subsidy expenditure is avoided.”

Published on June 30, 2011

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