The Hindu Business Line : Govt close to inking 10 lakh t DAP import deal

Global phosphoric acid suppliers are sticking to the $1,200 rate but with India contracting imports at $330-350 a tonne they will now come under pressure.

Harish Damodaran

New Delhi, Jan. 22 The Centre is close to clinching the biggest-ever di-ammonium phosphate (DAP) import deal involving a quantity of 10 lakh tonnes (lt).

The imported material, sourced from China and Russia, is said to have been contracted at $330 to $350 a tonne cost & freight (c&f) for delivery over March to July. “The imports are on Government account and will be done through the Indian Farmers Fertiliser Cooperative (Iffco) and Indian Potash Ltd (IPL),” sources told Business Line.

Earlier deal

The deal — understood to be more-or-less finalised — would be the largest single DAP import by the country. It surpasses the five-lt contract entered into by IPL only last month, again from China and Russia, at a landed price of $420 a tonne.

“A price of $330-350 a tonne is pretty good when seen against the prevailing US Gulf quote for DAP of around $375 a tonne.

Significant

“Adding freight cost of $25-30 from Tampa (Florida) would take the benchmark c&f rate at Indian ports to over $400 a tonne,” the sources noted.

The $330-350 a tonne negotiated price is also significant for another reason.

Indian fertiliser companies are currently engaged in a war of nerves with overseas suppliers of phosphoric acid over pricing of this crucial input used for manufacturing DAP.

The suppliers — OCP Group of Morocco and Groupe Chimique Tunisien (GCT) of Tunisia, besides Foskor of South Africa and Industries Chimiques Du Senegal of Senegal — are apparently demanding $1,200 a tonne c&f, which the Indian importers claim is far too high.

Phosphoric acid needs

For every tonne of DAP that is manufactured, fertiliser units require roughly 460 kg of phosphoric acid and 220 kg of ammonia.

At a landed cost of $1,200 a tonne on phosphoric acid (as demanded) and $150 a tonne on ammonia and adding five per cent customs duty on both, the cost of imported ingredients for every tonne of DAP works out to almost $615 a tonne.

Conversion costs

If one also includes conversion costs (water, power, sand, dolomite, sulphuric acid) of $60 a tonne, the cost of manufacturing DAP at the port comes to $675 a tonne.

“It is not viable to manufacture DAP using imported phosphoric acid when the finished product itself is importable at $330-350 a tonne (below $370 after accounting for a five per cent duty),” the sources pointed out.

Indian DAP manufacturers — mainly Iffco, Coromandel Fertilisers, Zuari Industries and Gujarat State Fertiliser Company — say any price above $600 a tonne for phosphoric acid is not feasible today.

“The phosphoric acid suppliers are sticking to the $1,200 rate without factoring in the crash in global DAP prices.

Domestic output

“But with the Indian side contracting DAP imports at $330-350 a tonne (against the peak $1,305 in September), they will now come under pressure,” they added.

Domestic production of DAP has fallen from 51.72 lt in 2004-05 to 42.11 lt in 2007-08, even as imports have risen from 6.44 lt to 27.24 lt during this period.

The current fiscal is expected to end with record imports of nearly 70 lt, with 54 lt already entering the country till December.

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