No clarity on urea price hike; DAP cost may rise: Tata Chem

The demand for fertilisers, including urea, muriate of potash and Di-ammonium phosphate (DAP), has been pegged at 21.37 million tonne for the upcoming kharif (winter) season.

In an interview to CNBC-TV18 PK Ghose, chief financial officer, Tata Chemicals informed that there is still no clarity if the much awaited hike in urea prices will be announced. However, he expects to see rise in the cost of DAP in the near-term. He said, the company is supportive of the new nutrient-based subsidy (NBS) policy for urea and anticipates further government action.  Meanwhile, fertliser stocks like Chambal Fertiliser and RCF gained today 1.6-2% on reports that government may consider urea price hike of 10%. The total requirement of urea is estimated at 15.80 million tonne for the kahrif season, highlights the data presented in the Lok Sabha in April. The demand for Di-ammonium phosphate has been pegged at at 6.94 million tonne, complex fertilisers at 5.55 million tonne, single super phosphate at 2.89 million tonne and for muriate of potash (MoP) at 2.19 million tonne. Below is the edited transcript of Ghose’s interview with CNBC-TV18. Also watch the accompanying video. Q: Are you expecting to hear about a hike in urea prices because that’s been in talk for a while but nothing has fructified just yet. If it comes about, what kind of a benefit would it have for companies such as you? A: You are right. Industry has been pressing for increasing urea prices for sometime. They have been asking for about 10% or slightly higher percentage increase in price. But, there is still no clarity as to whether it will come or not. We are waiting. We are extremely supportive of the NBS policy which is expected to come for urea. We would be awaiting further government action on this. Q: Just with regards to this retail price hike though, you think that is the quantum that may come through as much as 10% and how soon do you think that you may hear a final word on the issue? A: The industry has been taking up consistently on this matter. It will be difficult to predict when there will be a go ahead. I can only assure you that industry has been pressing for this increase in prices. We are extremely supportive in the industry of the new Nutrient-Based Subsidy (NBS) policy. Q: The suggestion of this increase seems to be separate from any headway on the actual policy itself where earlier there was piecemeal increase on urea prices suggested. Then there was a suggestion that there was complete decontrol on the issue. Have you heard anything in terms of headway or some kind of clarity on whether everyone is on board with that draft urea policy and when that can actually move? A: The draft urea policy is being cleared by the EGoM. I think it is awaiting cabinet approval, so the industry has already talked it over. EGoM has recommended it. But cabinet approval, we will have to wait. Q: While the policy seems quite encouraging on paper, the bigger challenge as we all know has been ensuring the availability of gas and on that, the supply seems to be veining. Are you expecting to hear any from the government at all on what’s happening on that accord? A: It is very difficult to predict the administered price mechanism (APM) prices of gas. Even in the KG basin the gases have dwindled over the last one year by almost 50% in quantity. But, we will be relying on the KG basin gas at least over the next five years. The government had very clearly said if there is an increase in capacity of urea which lot of companies have applied for,  then you are free to go and contract the gas. _PAGEBREAK_ Q: Will you be increasing capacity at this juncture? Any Brownfield expansion plans that Tata Chemicals has? A: We have this plan, over the last two years we have been working on this. We wanted to double the capacity at Babrala plant. We had made some headway more than one and half years ago on finalising the technology supplier on the critical equipment which is required. But, the final go-ahead is still to come from the government. We are prepared - that’s all I can say. Q: You said the policy is just awaiting EGoM approval. Is there clarity on what the modalities of the policy will contain because suggestion were made by the planning commission on issues such as deregulation of the urea sector which the Fertilizer Ministry itself let alone the other ministries had extreme objection to? A: It will be premature to say what exactly is the proposal because it is pending with the Cabinet and it will be a little premature for me to say what the exact final version is. Q: What kind of impact in the mean time are fertilizer companies such as yours facing because of what’s happened with the depreciation in the rupee? What’s the international price trend versus what’s happening domestically? A: If you look at the phosphatic industry, they chase the subsidy rates. They pushed down the subsidy rates sometime in the month of February 2012. That was in line with the DAP prices. But there was a reversal in trend in April 2012. The whole thing was compounded by this strong depreciation in the rupee. So, there is an impact on demand. There is some demand destruction which has happened. As far as we are concerned, the issue was that since there were large pipeline inventories, the negotiations got prolonged for a long time for phosphoric acid. But we have just settled the prices in the month of May towards the end of May. Q: By settled the prices, what do you mean? Have you hiked the DAP prices because of the rising international prices and the reduction is subsidies and also if you can give us how much scope there is to hike prices? What is the difference that we are seeing between international and domestic? A: What I meant was that the phosphoric acid prices have been settled in the month of May because there was prolonged negotiation because of pipeline inventories. The phosphoric acid prices have been settled in May because in the meanwhile, the plants as you know were shut. Our Haldia plant was shut for about 60 days. The price increase in DAP, whatever has already been taken has been taken, but one can expect that there could be further increases in the future. But by what amount, it is very difficult to say.