Crop and Chemical dashboard: January 2023

8 Feb 2023 , 02:43 PM

Chemical prices were mixed during January 2023 with Benzene, Methanol, EDC and VCM rising ~10-18% MoM, while acetic acid, Ethylene and Bromine declining ~8-11%. INR depreciated 2% MoM against USD, while Crude rose 2% MoM through December. The earnings season so far has been mixed, with companies having higher exposure towards discretionary segment reporting subdued performance, while companies having sales tied up (long-term contracts) and exposure towards essentials (Pharma and Agrochemicals) delivering healthy performance. Management are guiding for delayed recovery in discretionary by two to three quarters.

Earthquake in Turkey — Tata Chemicals in focus

Massive earthquake in Turkey is likely to put focus on soda ash supplies, as Turkey is among the key countries that manufactures both natural and synthetic soda ash, and commands ~7% of global soda ash capacity. Most of the soda ash companies have been highlighting tightness in supplies lately and if supplies from Turkey also get disrupted, the soda market would get tightened further (positive for soda ash pricing).

Government cuts fertilizer subsidy allocation

Fertilizer budget allocation for NBS (relevant for Coromandel International and other complex players) is down 38% from revised estimates to Rs 440 billion; while for urea (relevant for Chambal and other urea players) is down 14.9% from revised estimates to Rs1.3 trillion. While there has been a cut in allocation, it is in line with expectations as fertilizer companies are expected to benefit from the cooling-off of key inputs viz. ammonia, phosphoric acid and fertilizer prices like urea.

Budget focuses on energy storage

In the budget, there was emphasis on battery energy storage systems. BCD exemption have been extended on imports of silica inputs by two years, and that on lithium-ion cells, EVA sheet/solar-tempered glass used in solar cells or modules, have been extended by one year. Focus on battery energy storage systems, Lithium-ion and solar cells are positive for chemical companies that have an exposure to supply chain of these segments.

Chemical prices

Trend in chemical prices through January 2023 was mixed, as prices of certain key building block chemicals such as Benzene, Methanol, EDC and VCM grew ~10-18% MoM. However, prices of acetic acid, Ethylene and Bromine decline ~8-11%. TAN spreads have expanded by ~36% MoM, on the back of falling ammonia prices. Phenol spreads corrected ~11% in January 2023.

Global agriculture update

While prices of key commodities in the US were largely stable, US wheat futures declined ~4% MoM; exports from Russia are starting to ramp-up. Soybean prices in Brazil fell ~6% on expectations of a healthy harvest this year. Healthy global demand for maize, continues to keep prices elevated. In India, prices of wheat jumped up ~2%, despite FCI selling stock in the market.

Rabi sowing and rainfall update

Rabi acreages, as at 3^rd February 2022, were reported to be ~3% higher YoY. While wheat acreages are flattish YoY, acreage of rice/oilseeds is up ~32%/7%. Season-to-date rainfall (since 1^st January 2023) is ~22% below normal; reservoir levels are modestly below last-year levels.

Fertilizer MRPs

Despite falling import prices, domestic MRPs of key fertilizers remained largely flattish in December 2022. While global prices of ammonia and urea declined ~8-13% MoM in January 2023, prices of DAP and Phosphoric Acid were largely flat during the month. Fertilizer subsidy disbursement in December 2022 amounted to Rs290 billion.

Other highlights

Russian government has further increased the quota for ammonium nitrate exports by 375,000 MT up to May 2023. DFPC has signed a supply proposal for purchase of natural gas from GSPC for a period of three years, effective from 1^st May 2023 securing ~40% of supplies of the new ammonia plant. China’s Qingdao Haiwan is on track to start phenol/acetone plant by mid-2023. The plant can produce 200,000MTPA of phenol and 120,000MTPA.