Coromandel eyes 30-40% higher production in FY13

After the fertilizer minister's approval to hike urea prices by 10%, fertilizer stocks had a fair run at the market. In an interview with CNBC-TV18, Kapil Mehan, MD of Coromandel International said that the company expects healthy demand and consequently good volumes in the coming season.

Mehan also informed that the company has entered a contract for phosphoric acid valued at $850. The company also expects to improve production levels by 30-40%, added Mehan.
Talking about the fertilizer industry at large, Mehan said that it is high time for India to expand its urea capacities. He also stressed on the fact that urea price cap is a bigger concern for the industry. The need for bringing urea prices under nutrient based subsidy system is also important, explained Mehan.
Going forward, Mehan expects the company's production levels to be much better than the previous year. He is also hoping for healthy demand and good volumes in the coming season.  Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: Just give us an outlook in terms of FY13 fertilizer volumes and prices, what do you expect for Coromandel?
A: I think with the monsoon predictions now being normal we expect good sowings to take place during the coming season and that should lead to healthy demand. It should also reflect in the volumes of fertilizer companies including Coromandel. Q: People were talking about the domestic markets being over supplied at this point in time. What are the inventory levels in the industry?
A: I think there are two levels of inventories that we have today. One is with the industry and one is with the trade. I think we have inventory levels which coupled with the domestic production of the first three months. That should suffice us to take us till about middle of July or so, which is really the peak of kharif sowing season.
The estimates are somewhere between 4-5 million tonnes of phosphetic and potassic fertilizers which are available with the dealers and with the companies. That should suffice us to see us through till about middle of July including domestic production. Q3: How is the Sabero acquisition doing at this point in time and what would your guidance be for FY13?
A: In Sabero, we have made investments in improving the environment management facilities as well as certain utilities etc and that is on track. We have started commissioning those facilities one by one and that should reflect.
We are already seeing signs of pick up in the production levels and going forward we should start utilizing the capacity in a much better manner than what we have done during the last 12-18 months. As a policy, we don't give any guidance but we expect production levels to be much better than the past. Q: When you say much better it would be what – 15% higher, 20% higher. On production levels can you give guidance?
A: We expect production to be in the range of 30-40% higher than what we have seen in the recent past. Q: Is there any concern with regards to phosphoric acid availability and in terms of negotiations with suppliers at this point? Can you take us through any challenges if they exist?
A: We have finalized arrangement for our phosphoric acid with one of the key suppliers at USD 850 per tonne and other negotiations are going on. We have our own production capacity also to produce phosphoric acid from rock phosphate and sulphur. Those plants are running to full capacity.
We have sufficient stocks of raw material available with us, bought earlier as well as being bought now. We do not foresee any problem on that. The only disruption which we foresee is from Tunisia, where there is a little bit of disruption in supply of rock phosphate to the production units. There maybe some slip-ups so that's the only challenge that we have in the foreseeable two-three months period. Otherwise things are normal. Q: I know this is not something you would be concerned about; the new urea investment policy is not a matter of concern for you but as an industry insider and knowing the dynamics of the importance of gas, its price and it's linking to the ultimate subsidy and to the price what is the sense? Is that policy good enough to ensure that investment is kick started?
A: I think from whatever has appeared in the press and whatever we know through our discussions with ministry officials, the policy formulation seems to be good. It is about high time that India creates more capacity for urea manufacturing because that's the only fertilizer for which indigenous raw material is at least available.
Otherwise, the larger issue with urea is around its pricing because its price still continues to be under administered price mechanism, whereby it is artificially capped at a very low level. That has risk of disturbing the balance use of fertilizers that we have been advocating.
The government also has been advocating all the promotions, farmer education etc have been concentrating on balance use of fertilizers. It's high time that the urea prices are also brought under nutrient based subsidy system so that they reflect what the market prices and costs are.