Chemical Sector update and views of industry policy expert, Dr. Uttam Gupta

In the recent discussion, industry policy expert Dr. Uttam Gupta gave a thumbs up to NBS Scheme for phosphatic fertilizers and compensation for gas price increase for urea companies, he touched upon key policy issues in the chemical sector.

The industry expert mentioned the critical situation of India in regards to dependence on Coal and Natural Gas. Coal contributes to ~60% of India’s primary energy basket and depends on 84.5% of oil and 50% gas through imports which needs to be reduced. 

The call highlighted that after a dramatic fall in the coal inventory, the situation is, however, improving as the domestic companies are gearing up to produce more coal. Hence, aiding in reduction of coal import bills. Coal India Limited has been trying to produce 1bn tonnes of coal out of the 1.5bn tonnes that the Indian government proposed to produce domestically. CIL could only produce 738mn tonnes in FY20. The zeal to become a zero-carbon country has also contributed to reduced import bills.

The Chinese market has faced a loss in the production of coal due to unrivaled flood in a key coal mining area which serves upto 25% share of total China’s coal output. China provides 46% share of the total global output.

The prices of natural gas are rocketing high as the commodity witnessed panic buying and obsession of Europe to ramp up on it to fulfill the zero-emission policy. The prices for APM gas domestically have increased year on year. The prices increased from US $1.79/mmbtu to US$2.9/mmbtu between April’21 and Oct’21 and these are likely to increase to US$5.9/mmbtu in 1HFY23 and US$7.65/mmbtu in 2HFY23. 

The spot price for the same at the start of the year was US$5.5-6/mmbtu which has now zoomed to US$33/mmbtu. 

On the other hand, crude oil prices have also drastically increased from US$60/bbl in January to US$85/bbl now. India’s fiscal deficits suffers upto US$2bn for every U$1/bbl increase. The Indian government that promised to reduce 10% of crude oil dependency has only failed to do so as the import dependency increased from 77% to 84.5% in FY21. Even the high excise duties do not seem to waiver until there are changes made in the stimulus policy.

The government’s NBS policy comes out in favor of DAP and NPK fertilizers being stepped up in case inputs costs rise. Since the prices of DAP seem to have appreciated by 60%, the government has again increased the subsidy. This is positive for the phosphatic industry leader, Coromandel International. The aggregate subsidy bill for Urea stood at Rs. 597bn and NBS for non-urea fertilizers stood at Rs600bn in FY22E. This is estimated to increase to Rs. 1,197bn higher than that FY22 budgeted allocation of Rs. 795.3bn, this also includes NBS worth Rs207bn for non-urea fertilizers. The shortage of supply, if faced, will be addressed by the government through PSUs and co-operative producers belonging to the fertilizer sector of the country.