Weak monsoon, low reservoir level may impact fertiliser demand in H2 FY18

Mumbai: Even as domestic gas price revision will support the fertiliser industry, weak monsoon and low reservoir levels are likely to impact demand in the second half of this financial year, ICRA said in a report.

"The demand for fertilisers in the second half of FY18 should witness moderate growth as weakness in monsoon and low reservoir levels could impact sowing in the rabi season and, thus fertiliser sales. For FY18, volume growth should be in the range of 2-4 per cent," ICRA Senior Vice-President and Group Head, Corporate Ratings K Ravichandran said.

The primary sale of fertilisers rose by nearly 5 per cent, driven by a healthy progress of the monsoons during the early part of the kharif season and low inventories at the beginning of the season, ICRA said in a report.

As per ICRA's report on fertiliser industry, urea sales witnessed tepid growth of 2 per cent due to implementation of neem-coating of urea, which has curbed black marketing and improved the nutrient effectiveness.

Non-urea fertilisers witnessed renewed growth in sales volume owing to low systemic inventory at the beginning of the season.

However, ICRA said, with weakening of the monsoon towards the end of the current kharif season, the sector may witness modest growth in the second half of FY18.

"The recent revision in domestic gas prices will lead to an increase of the pooled gas price for the fertiliser sector for H2 FY18. The cost of production for the fertiliser sector should increase in H2 FY18 owing to higher pooled gas prices, coupled with the recent depreciation of the rupee against the US dollar," Ravichandran said.

The increased cost of production would lead to an increase in subsidy outgo for the government by Rs 1,000-1,100 crore in the second half FY18 and an increase in working capital borrowings for the industry, he added.

Higher gas prices are not expected to impact the competitiveness of the domestic urea producers will help the industry, he said.