Monsoon May Not Save Fertilizer Sector from Rising Costs

India’s fertilizer industry plays a crucial role in supporting agriculture, enhancing crop productivity, and ensuring food security. Typically, a normal monsoon season would be welcomed as it often boosts fertilizer demand. However, current trends suggest that challenges may persist in the Rabi season despite favorable weather conditions.

Rising Costs and Low Subsidy Rates
Recent months have seen a significant increase in the global prices of key raw materials used in fertilizer production, particularly Diammonium Phosphate (DAP). The cost of imported DAP and other raw materials has surged by double digits. These high input prices are expected to remain elevated in the coming quarters, putting pressure on fertilizer manufacturers’ cost structures.

Companies like Chambal Fertilisers and Chemicals Ltd (CIL) and Paradeep Phosphates Ltd (PPL), which rely heavily on DAP imports, are feeling the strain from these rising costs. Despite strong demand during the Rabi season, the increased input costs, combined with stagnant subsidy rates, are likely to squeeze profit margins for these companies.

The government has traditionally provided subsidies to make fertilizers more affordable for farmers. However, with rising input and fertilizer prices, there are concerns that current subsidy levels may be insufficient. If subsidies are not adjusted for the Rabi season, the financial pressure on fertilizer companies could intensify, potentially impacting their profitability in FY25.

Monsoon and Demand
The Indian Meteorological Department (IMD) has forecasted a robust southwest monsoon this year, expected to exceed normal limits. A healthy monsoon generally supports increased crop production during the Kharif season, leading to higher demand for fertilizers and agrochemicals. The current monsoon is progressing well, suggesting strong Kharif crop output and favorable water storage levels for irrigation during the Rabi season. Consequently, the second quarter of FY25 may see heightened fertilizer demand, benefiting companies in the industry.

Nevertheless, despite the boost in demand due to the favorable monsoon, rising input costs may constrain overall profitability for fertilizer manufacturers. Therefore, even a positive monsoon outlook does not guarantee strong financial performance for companies in this sector.

Nano Technology: A Growing Trend
One of the emerging trends in the fertilizer industry is the adoption of nano technology. The government is promoting nano fertilizers as a more effective and environmentally friendly alternative to reduce import dependency. Companies are exploring this new technology, with some already making strides.

Chambal Fertilisers and Chemicals Ltd (CIL) has launched a Nano facility in Kakinada, developing its patented Nano DAP fertilizer. The product has received positive market feedback, and CIL is actively partnering with local farmers to promote its use. Similarly, Paradeep Phosphates has introduced biogenic Nano DAP and Nano Urea under its Jai Kisaan Navratna Nano Shakti brand, with promising initial sales figures.

The government’s support for nano fertilizers aims to decrease import reliance and promote agricultural sustainability. However, this category of fertilizer is still in its early stages of development. Large-scale studies on farmer adaptability to nano fertilizers are lacking, and it remains to be seen whether traditional fertilizers will eventually be replaced by these innovative products.

The image added is for representation purposes only