MF Global India Daily Ideas - 22/JUN/2011 (FERTILISER)

[Shah, Vikas (IND Int)]

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Today’s Key Ideas

	Stock	Ticker	REC	News/Analysis
CYCLICALS
1.	Fertiliser			Weather dept has revised its monsoon forecast downwards, unlikely to affect production/ fertilizer consumption

 

 

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Weather dept has revised its monsoon forecast downwards from ‘normal’ to ‘near normal’, unlikely to affect production/ fertilizer consumption

 

1/News: IMD has said July rains are likely to be 27cm against 50 year average of 29cm. The forecast for August is 24cm, compared with long period average of 26cm.

 

Our view on Fertiliser consumption:  In comparison to other variables (which influence fertiliser consumption), monsoon has the weakest correlation to consumption. About 45% of the cultivated land consumes almost 60~65% of the fertilizers; that is to say rain fed land consume only about 40% of the total fertilizers. Strong ground water table and showers post south west monsoon too drove fertilizer consumption in the past. This implies fertilizer consumption is not entirely influenced by vagaries of monsoon of that year.

We however expect overall fertilizer consumption growth to be muted due to higher base (consumption gr in FY11 – Urea – 5%; Phosphatics -14%) and a delay in contracting for P&K fertilizers.

 

2/ News: DoF has expressed dissent to freeing up Urea prices at this stage/decontrol and this may delay the New investment policy for Urea sector.

 

Our view:  DoF’s dissent is in the backdrop of sudden jump in P&K retail prices by 30% since decontrol. Urea retail price could be raised by 10%; while pricing freedom looks imminent remains uncertain. Reforms in Urea, according to us are imminent given the disproportionate rise in competing fertilizers like P&K.

 

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