December 2022 Crop and Chemical dashboard: IIFL Securities

12 Jan 2023 , 11:32 AM

Global Chemical prices continued to remain weak in December amid sluggish demand. INR depreciated 2% MoM against USD, while Crude rose 2% MoM through December. Although prices of most Chemicals are softening, PVC prices have risen by ~Rs15/kg since IIFL Securities’ last update. Global Crop prices remain remunerative amidst erratic weather conditions in key sowing geographies, such as LATAM and North America. However, Rabi sowing in India continues to progress well as falling acreages across most crops are offset by 4% YoY increase in Wheat acreages. Reservoir levels in the country remain healthy.

Subsidy disbursement by the central government picked up steam in November, given that the government disbursed a record Rs492 billion during the month.

PVC prices, spreads continue to rise

Reliance Industries increased PVC resin prices four times over December 2022, taking the combined hike to Rs15/kg. This further confirms improving demand conditions after a long period of destocking by pipe dealers in the domestic market. PVC resin imports from China have also eased from September 2022 onwards, after a sharp jump during the lean monsoon months. Moreover, PVC production costs would have also increased in China, following higher coal prices.

Chemical prices

Prices of most Chemicals have softened in Q3FY23. Caustic Soda and Soda Ash prices corrected ~15% over December 2022. Phenol and Acetone prices fell ~5-6% MoM, though reduction in spreads was more profound at 12% MoM. Spreads of TAN have risen ~14% MoM in December 2022 amidst falling Ammonia prices. Spreads of Ethyl acetate and TDI have also risen ~19-21% over December 2022.

Capex announcements and capacity commissioning

Since IIFL Securities’ last update, India Pesticides announced a ~Rs2.5 billion project to manufacture Agrochemicals and Intermediates, and Meghmani Organics is spending ~Rs1.5 billion on a nano-urea manufacturing plant (with a revenue potential of ~Rs10 billion). Additionally, Kanoria Chemicals, Best Agrolife and NACL have commissioned capacities during last month.

Global Agriculture update

Prices of most key Commodity Crops rose over December 2022. US Wheat futures rose ~3% MoM, as export demand remained healthy and the cold wave has raised concerns of dampened supplies. Corn and Soybean prices rose ~3% over December 2022, as dry weather conditions in Argentina may impact the season’s production. Rice prices too rose ~1% MoM. In India, prices of major Crop Commodities rose ~-3-4%MoM in December 2022 (barring Soybean and Cotton). Soybean prices fell ~1% MoM. Cotton prices have fallen across the world, as the demand outlook has weakened amidst a recessionary economic environment.

Rabi sowing and rainfall update

Rabi acreages, as at 30-December-2022, were reported to be flat YoY. While Wheat acreage is up 4% YoY, acreage of Pulses, Coarse Cereals and Oilseeds are down ~2-8% YoY. Season-to-date rainfall (since 1-October-22) is ~20% above normal; reservoir levels are above last-year levels.

Fertilizer MRPs

Despite falling import prices, domestic MRPs of key Fertilizers remained largely flattish in November 2022. However, analysts at IIFL Securities hear that the industry has started to cut MRP’s of certain NPK grades from December 2022. Global prices have continued to decline in December 2022; Prices of Urea were ~13% lower MoM and that of DAP were ~1% lower. Fertilizer subsidy disbursement picked up steam and a record Rs492 billion was disbursed in November 2022.

Other highlights

1) India aims to cut spending on food and fertilizer subsidies to Rs3.7 trillion (US$44.6 billion) in FY24. 

2) The government has extended RoDTEP (Remission of Duties or Taxes on Export Products) Scheme to Chemicals, Pharmaceuticals. 

3) A fire accident took place at a subsidiary plant of Jindal Poly Films situated at Igatpuri. As per the company, the fire was controlled but production operation at part of the said plant is disturbed temporarily. 

4) The Centre has directed officials to encourage pesticide manufacturers to import formulations and manufacture required Agrochemicals in the nation. 

5) Ministry of Commerce has initiated a mid-term review of the ADD imposed on the imports of “Aniline” from China.