Lower input, energy costs to bring down fertilizer subsidy requirement

Chennai: Decline in raw material prices and natural gas price is likely to bring down the subsidy requirement for the fertilizer sector. However, rupee depreciation can add to the subsidy burden.

For nutrient-based fertilisers, the average prices for input raw material such as phosphoric acid, rock phosphate and sulphur had started to decline from 4QFY23. While phosphoric acid prices declined to $968 per tonne against FY24 average price of $974 per tonne, rock phosphate prices fell from $213/tonne to $203/t and sulphur prices came down from $335/tonne to $150/t. For the Nutrient Based Subsidy scheme, Ind-Ra expects the announced levels in the budget to remain sufficient for FY25, given the decline in key input prices coupled with stability in natural gas prices, finds India Ratings.

Ind-Ra expects the average pooled gas price to remain moderate at $10-13/MMBtu in FY25 against $17/MMBtu in FY24. A moderation in the Henry Hub Prices and of corresponding linked imported LNG, relative stabilisation in the average prices of crude oil, cabinet approval of the Kirit Parekh Committee, leading to a moderation in the administered price mechanism prices, and cooling off of the spot LNG prices would be supportive. Regasified Liquid Natural Gas formed 85 per cent of the total consumption by the fertiliser sector in FY24.

Ind-Ra estimates that with the decline in natural gas price, the subsidy requirement for the sector will come down from the FY24 levels. Every $1/MMBtu decrease in the pooled gas price would lead to Rs 1,721/tonne decrease in the subsidy burden, assuming a weighted average energy consumption of 5.826Gcal/tonne.

However, a 1 INR/USD depreciation would lead to Rs 215/tonne increase in the subsidy burden.