The monthly urea off-take for June 2018 slid by a massive 43 percent year-on-year, as per the latest statistics released by the National Fertilizer Development Centre. The 1HCY18 urea off-take has also steadied to just 1 percent year-on-year – which is a massive fall as it was seen growing north of 30 percent till May 2018.
The Kharif season off-take still looks promising, despite a 19 percent dip year-on-year. But normalcy is believed to be restored in July, as the dip in June is also heavily based on an unprecedented million tons urea off-take in Jun 2017. But, to expect urea off-take to grow any higher than single-digits would be optimistic, especially given the recent round of urea price increase.
The 1HCY18 urea off-take is also the highest in five years, as low urea prices amid continued subsidy has ensured better fertilizer application. Recall that urea off-take has recorded consecutive year-on-year increase in four of the six months in the calendar year so far, which is also a first.
On the pricing front, June 2018 saw urea prices go up by a massive 8 percent month-on-month. Recall that urea prices last year stayed under Rs1400 per bag, and have been climbing ever since, steadily. The rise has gathered pace in the last two months, with urea prices closing at Rs1583 per bag in June 2018.
International urea prices have also continued to follow the bullish trend that started back in January 2018.
The international urea price has averaged $283 per ton during 1HCY18, almost 30 percent higher than the same period last year. With global inventories getting tight and oil prices on the rise, most observers expect urea prices to settle on the higher side in the near future.
The gas prices are likely to be increased from July onwards, and that could mean added feedstock price for manufacturers. It remains to be seen whether the government decides to cross subsidize. Should the fertilizer prices go further up, there is a high chance the off-take momentum may die down. Even in best case scenario, no one expects the total yearly urea application to cross 6 million tons.
That said, pricing is not a huge concern, being a pass through items at most times. The government would do well to adjust the input and output taxes, in a way that smoothens the cash flow problems of the manufactures.
Much has not changed in terms of farm yields for many years. On the brighter side, DAP application has continued to improve. Although, it is still far from the ideal level of balanced fertilization, the NP ratio today is much improved from five years ago; thanks mainly to much reduced DAP prices via subsidy, and increased awareness amongst farmers.