New fertiliser policy will attract investment by private sector: Crisil

Economy Bureau
Posted: 2008-08-19 00:00:03+05:30 IST
Updated: Aug 19, 2008 at 0000 hrs IST

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Mumbai, Aug 18: The new fertiliser policy announced by the Centre will boost investment in the sector from private players. Crisil in its research report has observed that gas availability will not be a constraint for new urea capacities, post December 2008 following the commencement of gas supply from Krishna Godavari basin.

Crisil estimates that the long term pricing of domestic gas will be between $7-9 per million British thermal unit (mmBtu) adjusting for the declining availability of APM (administered price mechanism) gas.

Crisil admits that the profitability of the sector is determined by the availability of natural gas, which is a key input and the end prices of urea. The policy indicates the normative price of urea at 85% of the import parity price, subject to a floor price of $250 per tonne and a cap of $425 per tonne respectively for urea produced from the new capactities going forward. Currently, urea trades at over $700 per tonne in the international markets, which is a significant premium over the cap price suggested by the policy.

Crisial research head Sudhir Nair said, “We have observed a strong correlation between crude oil and urea prices. Crude oil prices are expected to decline sharply to around $84 per barrel by 2012. Urea prices too are expected to decline to around $400 per tonne- a level closer to the ceiling price fixed by the new fertiliser policy.”

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New fertiliser policy will attract investment by private sector: Crisil

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