The Indian government will continue to support importers and producers of DAP beyond the nutrient-based subsidy (NBS) to the end of the October-March rabi season, according to a document seen by Argus.
Without such support, Indian DAP importers and producers would still stand to make substantial losses, according to Argus' calculations.
The government will pay importers and producers for any advantage or disadvantage incurred because of upward or downward trends in the international market over rabi.
It will continue to pay importers and producers 3,500 rupees/t to make up for other costs — including port handling, bagging, marketing, transport and dealers' margins.
Importers and producers will also receive a rebate on the goods and services tax (GST) component of the maximum retail price (MRP), and provision for a 4pc return on the net MRP.
The MRP for DAP is Rs27,000t. The NBS for DAP over the rabi season is Rs29,805/t.
The government is providing the same support for imports of TSP as it is for imports of DAP. But the MRP for TSP is Rs26,000t.
An importer buying DAP at $668/t cfr would make a loss of around $120/t at current exchange rates if selling at the MRP and receiving the base NBS.
The additional subsidy of Rs3,500/t to cover other costs — bringing total subsidies to Rs33,305/t — brings the loss down to the low $80s/t.
Producers' margins poor and outlook mixed
Domestic producers making DAP using ammonia imported at $534.20/t cfr — the average of Argus assessments in December — and phosphoric acid at the fourth-quarter contract price of $1,290/t P2O5 would make losses in the low $140s/t if only receiving the MRP and total subsidies of Rs33,305/t.
With the same MRP and subsidies, domestic DAP producers using imported phosphate rock, sulphur and ammonia would make losses in the mid-$150s/t cfr. This is assuming phosphate rock imported at $182/t cfr and sulphur and ammonia imported at $534.30/t cfr and $534.20/t cfr, respectively — the averages of assessments in December.
Any further devaluation of the Indian rupee against the US dollar will weigh further on margins for both importers and producers of DAP. The possibility of softer ammonia prices will offer some support to producers' margins, but producers using phosphate rock will still see their margins pressured by firm sulphur costs. First-quarter phosphoric acid contract prices have yet to settle.
