Indian Fertilizer Scenario in Volatile Market Rakesh Kapur Jt. Managing Director rkapur@iffco.in New Delhi May 04, 2022 mailto:usawasthi@iffco.in India – Global Trade India – A large Global Importer of Fertilizers and its Raw Material/ Intermediates ~ 36 Million MTPA valuing more than US$ 10 Billion. 2 3 10 8 4 6 5 14% 20% 25% 56% 31% 6% 0% 10% 20% 30% 40% 50% 60% 0 2 4 6 8 10 12 Ammonia Urea Rock Phosphate Phos. Acid DAP MOP India’s Share in Global Trade in 2020 (Million MT), % of Total World Export Fertiliser and Agriculture in India  India Fertilizers consumption ~ 62 Million MTPA, playing pivotal role in ensuring Food Security for the growing population.  Urea accounts for more than 50% of total consumption of Fertilisers.  Fertilizer Demand projected to grow @ CAGR of 2% per annum.  Government of India (GOI) offers Minimum Support Price (MSP) on crops; Supports Farmers by compensating their input cost on normative basis. 3 34 9 2 11 6 Urea DAP MOP NP/NPK SSP Annual Fertilizer Consumption, 2021-22*P (Million MT) 316 331 FOODGRAIN PRODUCTION HORTICULTURE PRODUCTION 2021-22 *E, (Million MT) *P = Provisional *E = Estimated Fertiliser Situation in India Fertiliser Production Capacity ~ 55.9 million MT Urea Imports in the range @ 25-30%. For Urea manufacturing ~ 65% requirement met by Import of RLNG (Natural Gas). Heavy dependence on Imports for Raw Material of P&K fertilizers. 100% MOP imported 4 24.00 24.46 24.60 25.07 7.56 9.12 9.83 8.80 31.72 33.57 35.10 33.28 2018-19 2019-20 2020-21 2021-22 Production Imports Sales 3.90 4.55 3.77 4.22 6.92 5.44 5.81 5.69 9.50 10.28 10.50 8.45 2018-19 2019-20 2020-21 2021-22 Production Imports Sales Urea (million MT) 4.21 3.67 4.23 2.46 3.18 2.84 3.30 2.46 2018-19 2019-20 2020-21 2021-22 Imports Sales DAP (million MT) MOP (million MT) Fertilizer Situation in India (MMT) 5 Product Year Production Imports Total Sales Urea 2018-19 24.00 7.56 31.56 31.72 2019-20 24.46 9.12 33.58 33.57 2020-21 24.60 9.83 34.43 35.10 2021-22 25.07 8.80 33.87 33.28 Product Year Production Imports Total Sales DAP 2018-19 3.90 6.92 10.82 9.50 2019-20 4.55 5.44 9.99 10.28 2020-21 3.77 5.81 9.59 10.50 2021-22 4.22 5.69 9.91 8.45 Product Year Production Imports Total Sales NP /NPK 2018-19 9.51 0.72 10.23 9.62 2019-20 9.33 0.86 10.19 10.43 2020-21 10.05 1.74 11.79 12.18 2021-22 8.33 1.40 9.73 10.82 Urea Pricing for Farmer Govt. Policy on Urea - Fixed Retail Price and Open Subsidy. Low MRP causes higher Urea consumption. 6 Urea Consumption Vs Price in India 0 5 10 15 20 25 30 35 40 0 1000 2000 3000 4000 5000 6000 7000 20 00 -0 1 20 01 -0 2 20 02 -0 3 20 03 -0 4 20 04 -0 5 20 05 -0 6 20 06 -0 7 20 07 -0 8 20 08 -0 9 20 09 -1 0 20 10 -1 1 20 11 -1 2 20 12 -1 3 20 13 -1 4 20 14 -1 5 20 15 -1 6 20 16 -1 7 20 17 -1 8 20 18 -1 9 20 19 -2 0 20 20 -2 1 20 21 -2 2 Axis Title U re a Co ns um pt io n (m ill io n M T) U re a Pr ic e (₹ /M T) Urea Price (₹/MT) Urea Consumption (million MT) P&K Fertiliser Pricing for Farmer DAP Consumption Vs Price in India 7 Policy on P&K fertilizers - Fixed Subsidy and Floating Market Driven Retail Price. At present 25 grades of P&K fertilizers are covered. P&K fertilizer consumption gets affected on account of high Import price/farmgate price. Urea to DAP farmgate price ratio at 1:5 Demand destruction due to higher prices? 0.00 2.00 4.00 6.00 8.00 10.00 12.00 0 5000 10000 15000 20000 25000 30000 20 00 -0 1 20 01 -0 2 20 02 -0 3 20 03 -0 4 20 04 -0 5 20 05 -0 6 20 06 -0 7 20 07 -0 8 20 08 -0 9 20 09 -1 0 20 10 -1 1 20 11 -1 2 20 12 -1 3 20 13 -1 4 20 14 -1 5 20 15 -1 6 20 16 -1 7 20 17 -1 8 20 18 -1 9 20 19 -2 0 20 20 -2 1 20 21 -2 2 D A P Co ns um pt io n (m ill io n M T) D A P Pr ic e (₹ /M T) DAP Price (₹/MT) DAP Consumption (million MT) International Price Trend – Last one year 356 656 225 405 795 124 229 950 1,124 852 946 1,530 284 416 Granular Urea (FOB ME Non US Net) DAP (CFR from US Gulf) MOP (FOB Vancouver) Ammonia (CFR India) Phos Acid CFR India) Rock Phosphate (cfr India) Sulphur (CFR India) Trend in International Prices in last one year, USD/MT Mar-21 Mar-22 8 167% 71% 92% 133%280% 130% 82% % increase • Rising price trend in the fertiliser and raw material prices. Covid 0 200 400 600 800 1,000 1,200 A P R -2 0 M A Y -2 0 JU N -2 0 JU L- 20 A U G -2 0 SE P -2 0 O C T- 20 N O V -2 0 D EC -2 0 JA N -2 1 FE B -2 1 M A R -2 1 A P R -2 1 M A Y -2 1 JU N -2 1 JU L- 21 A U G -2 1 SE P -2 1 O C T- 21 N O V -2 1 D EC -2 1 JA N -2 2 FE B -2 2 M A R -2 2 Trend of International Price, CFR India (USD/MT) Sulphur DAP Ammonia MOP Prilled Urea Import Price for India Price Volatility of P&K fertilizers- Impact on farm gate prices. Fertilizer Prices soared in mid-2021 due to Strong Demand from key Crop Growing regions, High Input Costs and Lower Exports from China. Fertilizer Prices were flat during initial Covid period; Favourable for increase in acreage and food grain production. 9 Increased Subsidy on Fertilisers  GOI intervened to avoid the increase of farmgate prices and raised the fertilizer subsidy on fertilisers.  Fertiliser Subsidy raised by GOI in 2021-22:  P&K subsidy by 210% to avoid demand destruction; thus ensuring Food grain production.  Urea subsidy by 29%, hence Farmers continued to remain insulated from rise in International Prices due to price control on Urea.  Fertiliser Subsidy budget in 2022-23 is expected to go up for P&K Fertilisers by USD 11.1 billion and Urea by USD 7.5 billion. 10 Total Subsidy on Urea by GOI (USD Billion) Particulars 2019-20 2020-21 2021-22 *P 2022-23 Budget Estimate 6.6 6.3 7.8 8.3 Actual Allocation 7.2 11.9 10.0 15.8@ increase (in USD billion) 0.6 5.6 2.3 7.5 % increase 9% 89% 29% 90% Total Subsidy on P&K by GOI (USD Billion) Particulars 2019-20 2020-21 2021-22 *P 2022-23 Budget Estimate 3.3 3.1 2.7 5.5 Actual Allocation 3.5 4.9 8.5 16.6@ increase (in USD billion) 0.2 1.8 5.7 11.1 % increase 6% 59% 210% 200% *P = Provisional *E = Estimated @ Projected Subsidy amount Sustainability of Fertilizer Budgetary Support ? 9.3 9.2 9.9 9.4 10.5 13.9 8.8 9.3 10.7 16.9 18.5 32.5 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23*E Fertilizer Subsidy Allocation by GOI (US$ Billion) Budget Estimtae Actual allocation 11 Fertilizer Subsidy bill of GOI rose from US $ 10.5 Billion to US $ 18.5 Billion (76% increase) in 2021-22. Fertilizer Subsidy Budget for 2022-23 already increased to USD 22 Billion. It may touch US$ 32.5 Billion in 2022-23. USD 7.5 B USD 8.5 B USD 22 B *USDINR = 75.8071 GOI Budget- Agriculture & Fertilizer Subsidies 12 2.7% 2.7% 4.1% 4.4% 2020-21 2021-22 Fertiliser Subsidy Budget (% of Overall GOI Revenue Budget) Budget Estimate Actual Allocation 31.5% 34.9% 48.7% 48.7% 2020-21 2021-22 Fertiliser Subsidy Budget (% of Total Agriculture Budget) Budget Estimate Actual Allocation Particulars Type 2020-21 2021-22 2022-23 Fertiliser Subsidy Budget (₹ Billion) Budget Estimate Revenue 713 795 1,052 Actual Allocation Revenue 1,279 1,401 2,460*P Overall Budget (₹ Billion) Budget Estimate Revenue 26,301 29,290 31,947 Actual Allocation Revenue 30,835 31,673 Particulars Type 2020-21 2021-22 2022-23 Fertiliser Subsidy Budget (₹ Billion) Budget Estimate Revenue 713 795 1,052 Actual Allocation Revenue 1,279 1,401 2,460*P Total Agriculture Budget (₹ Billion) Budget Estimate Revenue 2,261 2,278 2,567 Actual Allocation Revenue 2,623 2,878 Note: 1) Above is addition of Fertiliser subsidy budget and Agriculture & Allied Activities Budget. 2) Food Subsidy budget has not been included in Total Agriculture Budget.*P = Projected Russia-Ukraine Conflict 2022 Russia Ukraine war began on February 24, 2022. Closure of Odessa /Yuzhny ports impacted the supplies from Black Sea. Shortages in availability of vessels. If prohibitive sanctions imposed on Russia for longer period, it may cut off 3 million MT Ammonia from global trade. Rise in crude prices to impact the freight costs and consequently, the fertiliser prices. Fall out of the war in Ukraine has not just pushed up Oil and Commodity Prices BUT severely hit Global Supply Chains. 13 671 786 894 884 946 1,021 940 958 781 613 906 949 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 Impact on Ammonia and Urea Price CFR India, US$/MT Ammonia CFR Prilled Urea Bulk CFR Rising Prices Russia-Ukraine Conflict 2022 – Impact on Fertiliser Trades  Russia – amongst World’s largest fertiliser exporters @range 10-30%  Disruption has cut-off the Russian supply from Global Trade.  Rise in crude prices impacting the freight cost and consequently, the fertiliser prices.  Crude Oil price rise posing further thrust on fertilizer commodities and Natural Gas Cost.  Supply shock : Fertilizer Prices rising exponentially globally.  India imports approximately 0.35 million MT Ammonia and 1.2 million MT Urea from Russia. Fertiliser Global Trade in 2020 Russia Export & (%) of Global Trade Ammonia 18 4 (23%) Urea 52 7 (14%) DAP/ MAP 32 3.5 (11%) NP/NPK 19 6 (31%) MOP 58 12 (21%) *Quantity in Million MT Source : IFA Impact of Conflict on Fertiliser Situation in India 15 22 15 6310 23 5 6239 33 23 5 1 39 38 11 12 69 7 10 11 3 West Asia/ ME region (%) East Asia (%) Africa(%) Russia/ Ukraine (%) North America/ Europe (%) India’s Fertiliser Imports from various Countries MOP NP/NPK DAP Urea Ammonia Primary source is Middle East region /Africa /South East Asia region @ 66% of total imports Sanctions on Russia may not immediately impact the fertiliser availability. Fertilizer Imports to India from China Commodity 2020-21 (Million MT) 2021-22 (Million MT) Urea 3.0 2.31 DAP 1.55 2.0 NP 20:20:0:13 0.58 - 16 9.50 10.28 10.50 8.45 9.62 10.43 12.18 10.82 3.18 2.84 3.30 2.46 2018-19 2019-20 2020-21 2021-22*E Sale of P&K Fertilisers in India (in Million MT) DAP NP/NPK MOP Impact on Fertiliser Situation in India Increase in international prices but MRP was not allowed to be increased Subsidy increase not commensurate to the loss incurred. Decline in Sales of P&K fertiliser, due to reduced Availability in 2021-22. Fertilizer Availability is not a significant threat for upcoming Kharif season 2022. However, Price increase may reduce Import demand and affect P&K consumption. Imports supplies from other regions to partly replace the Russia/Belarus shortfall Prolonged Disruption in Global Supplies and Higher Prices may affect the next Rabi Season 2022-23. Increased Exchange Rate Volatility resulting in Higher Landed Cost of Fertilizers. 17 19% decline 11.2% decline 25.6% decline Government Efforts on Ensuring Supplies  Aggregation of Demand of Urea /DAP/NPK/MOP, as projected by the States before start of the Kharif (Apr-Sep) and Rabi (Oct-Mar) Cropping Seasons.  Reviewing Company wise Production/Import/Supply Plan every week.  Monthly District -wise Fertilizer Movement Plan.  Close Monitoring of Production /Imports /Dispatches /Inventory.  Ensuring adequate Railway Rakes for product movement from the Plants/ Ports.  Expediting Subsidy Payment to sellers on Sale of Fertilizers to Farmers through POS machines.  Holding Government to Government level consultations with Supplying countries to ensure adequate supplies. 18 Strategy to Reduce Dependence on Imports 19 Cost of Indigenous Urea Vs imported Urea *Additional Outgo of ₹ 1500 billion to foreign suppliers on Urea Imports. *Av Imported Urea Price was much higher at Rs 45000 PMT in 2021-22. • Global and Regional Fertilizer Markets to readjust to alternate Supply sources. Tighter Supplies -Availability to be a constraint in the longer run. • Fresh Urea Capacities being added. Addition of around 04 Million MT domestic Urea production, thereby reducing 50% of Urea Imports. • In spite of Higher Fixed Costs of new Urea Plants and substantial increase in LNG prices, the Cost of Production of Domestic Urea continues to be lower than the landed cost of Imported Urea. • Imports from other regions to partly replace the Russia/Belarus shortfall. Natural K from Molasses being pushed as a possible substitute for Potash. • Promoting the Use of Alternative Fertilizers Other Strategies to Mitigate the Effect of Higher Prices  Natural Gas price increase to be absorbed in Subsidy Budget.  Sanctions may lead to decline of Stock to Use ratio globally. Rebuilding inventories may cause higher prices.  Promoting Balanced use of fertilizers. To aggressively reduce the per acre usage of fertilizers.  Thrust on Micronutrient rich Specialty Fertilizer segment.  Hike in Minimum Support Price (MSP) to incentivize Farmers during this period of volatility.  GOI is aiming to double the Wheat Exports (Target ~10 Million MT) to ensure better returns to Farmers. 20 Other Measures to Reduce Fertilizer Dependence  Extension efforts for shifting to alternate Cropping patterns that require less conventional fertilizers and water.  Soil Health Cards to encourage Balanced use of Chemical Fertilizers.  Encouraging use of Organic/ Bio- Fertilizers/ Green Manuring to improve Soil health and reduce fertilizer consumption. Increased support to Organic Farming.  Fertilizing below the recommended rate as a valid temporary strategy when the fertilizer/grain price ratio is higher than usual. IFFCO has launched, Nano-Urea (Liquid) Fertilizer – A promising innovative alternative to meet the Urea demand and reduce imports. Nano DAP is also to be launched shortly. Thank You 22 Indian Fertilizer Scenario in Volatile Market India – Global Trade Fertiliser and Agriculture in India Fertiliser Situation in India Fertilizer Situation in India (MMT) Urea Pricing for Farmer P&K Fertiliser Pricing for Farmer International Price Trend – Last one year Import Price for India Increased Subsidy on Fertilisers Sustainability of Fertilizer Budgetary Support ? GOI Budget- Agriculture & Fertilizer Subsidies Russia-Ukraine Conflict 2022 Russia-Ukraine Conflict 2022 – Impact on Fertiliser Trades Impact of Conflict on Fertiliser Situation in India Fertilizer Imports to India from China � Impact on Fertiliser Situation in India Government Efforts on Ensuring Supplies Strategy to Reduce Dependence on Imports Other Strategies to Mitigate the Effect of Higher Prices Other Measures to Reduce Fertilizer Dependence Slide Number 22