The Indian government confirmed that it has explored other potential origins for fertilizers but stressed that stocks are comfortable ahead of the summer Kharif season, with signs that domestic urea production can increase.
The announcement follows Prime Minister Narendra Modi's chairing of the country's security cabinet committee on 22 March to assess impacts in India considering the ongoing US-Iran war. The committee pointed to ‘adequate' fertilizer stock levels, which should ensure availability and food security.
But the committee also discussed ‘alternate sources' of fertilizers for future consumption. Market participants have assumed in recent weeks that India has approached China to secure more of its urea needs for the coming months, but there has been no official confirmation of these reports.
Gas first, urea later
Urea is the most important and widely consumed fertilizer in India. Stocks levels had largely tracked those a year ago, at around 6.1mn t midway through this month. But domestic urea production had been cut sharply in the weeks after the outbreak of the war as energy costs surged and authorities limited the fertilizer sector's gas consumption to 70pc of its usual needs.
This measure saw urea run rates slip to the equivalent of 1.7mn t for the month as of 18 March — 68pc of output in the same month last year. The Indian government then bought more gas on the spot market on 19 March, which should see urea production increase by around 9,000 t/d or so — up to about 2mn t/month equivalent — just under 80pc of usual output. But the measure has yet to alter the current state of play, with most recent provisional data indicating rates are still running at or slightly below 1.7mn t/month.
The move to increase gas supply should take some pressure off the country's tight urea balance, when the most recently bought gas filters through to plants, but only slightly. India typically builds urea stocks by 2.5mn-3mn t or more in March-May during the off-season, before demand picks up for the peak summer months of June-August. But the drop in local output, though softened, still threatens the key restocking period before the summer. Market participants had expected a fresh urea import tender to emerge in the previous weeks to top up supplies, but the country's task force most recently signalled that a decision may likely come towards the end of this month.
The US-Iran war has prompted a surge in urea prices, up by 50pc in three weeks, with 1mn t/month of urea exports from Qatar, Saudi Arabia, the UAE and Bahrain — equating to a fifth of global seaborne trade — cut off by the effective closure of the strait of Hormuz.
