India’s self-sufficiency goal for urea unlikely: analysts

The country is upgrading and expanding urea plants, but experts 
say the high cost of nitrogen and gas make it uneconomical

Urea fertilizer prices will stay depressed for years if India follows through with plans to become self-sufficient, but that is highly unlikely, say analysts.

According to a Bloomberg story, the world’s biggest importer of urea fertilizer intends to produce as much as it consumes within five years.

“We are in the process of reviving ailing plants, restarting closed units, expanding existing projects and building new ones,” Dharam Pal, joint secretary at India’s fertilizer ministry, said in the Bloomberg article.

“The target is to wipe out urea imports completely by 2022.”

His comments raised the eyebrows of David Asbridge, president of NPK Fertilizer Advisory.

“That’s a very interesting proposition,” he said.

India imports about eight million tonnes of urea annually, primarily from Oman, China and Iran. That is almost double what the United States, the world’s next biggest importer, will be buying after its third new urea plant is up and running.

India produced 24.5 million tonnes of urea in the year that ended March 2016 and consumed 32 million tonnes during that same period.

If it is successful in eliminating that gap, it would add to an already oversupplied market and keep prices depressed for a long time, said Asbridge.

Jason Newton, head of market research with Agrium, said self-sufficiency has long been a goal of the Indian government.

“It hasn’t happened,” he said.

“A major constraint that limits the expansion of nitrogen production in India is the lack of gas and particularly the lack of globally competitive gas.”

Natural gas in India sells for about US$7.50 per mmbtu (one million British Thermal Units), which is more than double the going rate in North America. That is why a new production plant that was built in India two years ago still hasn’t opened.

“It’s just not economical at current nitrogen prices and those gas prices,” said Newton.

It is not even economical to build a new plant in North America where gas is selling for just above $3 per mmbtu.

Newton expects India’s production of urea to remain stable and will not come close to annual consumption, which is steadily growing.

Asbridge expects urea prices to remain low for another two to three years even without additional output from India.

If India managed to add another eight million tonnes of annual production to the world supply, it would drive down prices to the lows of last summer when urea traded at a barge price of $177 per tonne in New Orleans. Prices haven’t been that low since 2004.

Prices have risen since then because China curtailed production due to rising coal costs. The country has idled about 20 percent of its production capacity.

China exported nine million tonnes of the nitrogen fertilizer in 2016, down from 13 million tonnes the year before.

Asbridge is not convinced that India’s plans are genuine.

“It doesn’t make a whole lot of sense to me, to be honest with you,” he said.

It is an odd time to fire up inefficient, mothballed plants and build new ones when urea prices are depressed. That kind of activity tends to happen when prices are soaring.

He thinks India would be better off continuing imports at rock bottom prices.

“They may be trying to beat the price of urea down a little bit more by threatening to build new plants and open old plants,” he said.

“They do stuff like that.”

Although, he did note that India’s annual production has risen by about 4.5 million tonnes over the last decade, so it is possible the government is sincere.

The Bloomberg story noted that increasing domestic production would help shield Indian farmers from urea price fluctuations and limit government subsidies to farmers.

It also is aligned with Indian Prime Minister Narendra Modi’s plans to boost domestic manufacturing.

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