Crop & Chemical dashboard of March 2023: IIFL Securities

12 Apr 2023 , 11:40 AM

During March-2023, around 20 MoUs were inked under Aatmanirbhar Gujarat Schemes for Assistance to Industries. These multiple MoUs will see investments totalling Rs118bn in industries such as lithium-ion battery materials, dense soda ash, food processing, specialty chemicals, API, kraft and duplex paper-board, specialty products for personal care, etc.; and are expected to start commercial production by 2025. Chemical companies that have signed MOUs include: Aether Industries (Rs10bn investment for plants at Panoli), Anupam Rasayan (Rs6.7bn investment for 3 new units in Jhaghadia & Sachin), and Neogen Chemicals (Lithium-ion battery materials and API manufacturing facility project at Dahej).

 

Global Agriculture update: 

Prices of corn and rice grew ~3-5% MoM, driven by robust demand from China (for corn) and an increase in USDA's consumption estimates (for rice). Brazilian soybean prices declined ~9% over Mar'23, due to a record production expected from Brazil this year. In India, paddy prices declined ~3% as demand from key importing countries has weakened. Cotton prices too have continued to soften - registering a ~4% decline over Mar'23.

Partnership with Japanese companies gaining momentum:

During the month, Neogen Chemicals signed agreement with MU Ionic Solutions Corporation, Japan to acquire manufacturing technology license for electrolytes in India. Anupam Rasayan also signed letter of intent worth ~US$120mn (six year) contract with a Japanese chemical company to supply new-age advanced intermediate. Aether executed long-term supply and sales agreement with Japan-based Otsuka Chemical Co., and also signed letter of intent with Saudi Aramco Technologies.

Fertilisers - APM gas formula tweaked: 

Price of gas produced from nomination basis blocks (APM) will have a floor and cap of U$4/mmbtu and US$6.5/mmbtu respectively for two years. This will be a pass through for urea manufacturers; benefits would be limited to lower working capital. Despite falling import prices, domestic MRPs of key fertilisers remained largely flattish in Feb’23. However, these are expected to correct in the upcoming Kharif season, as input costs have now moderated.

Update on Chemical prices: 

Mar'23 witnessed a declining trend in prices of most chemicals. Prices of Soda Ash, Phenol and Bromine declined ~7-26% MoM. The decline was more moderate in prices of PVC, Caustic Soda and Ethyl acetate - which declined ~2-3% MoM. Phenol spreads decreased ~12% MoM but PVC spreads increased ~83% MoM — on the back of a reduction in VCM prices. Prices of ammonia corrected ~33% MoM; this led to a ~54% rise in TAN spreads. Spreads of packaging films continue to remain subdued.

Capacity additions in the Soda Ash market: 

Soda Ash market is likely to witness higher supply from China and the USA. Chinese production is expected to rise by 5.0 MTPA by the end of 2023, with new capacity coming online in Inner Mongolia in May 2023. Genesis Alkali will also introduce 500Ktpa in the USA by mid-2023.

Monsoon 2023:

Skymet expects the upcoming June-September monsoon to be 'below normal' to the tune of 94% of the long period average (LPA); while IMD forecasts ‘normal monsoon’ with rainfall is likely to be 96% of the long-term average. El Nino impact is likely to be felt in the second half of the monsoon season.

Other highlights: 

1) Government has designed a scheme for rewarding states that push organic farming in a measure to cut ballooning subsidies for chemical fertilisers. 

2) IFFCO and Coal India Ltd (CIL) will manufacture Nano DAP for a 3yr period. 

3) India has extended the deadline for import certification of selected chemicals to allow domestic end-user industries more time to adhere to the quality-control requirements. 

4) Croda India has decided to invest Rs5bn in a new Dahej greenfield facility to serve rising regional consumption of its Consumer Care products and growing opportunities in Pharma and Crop Care. 

5) Astec Lifesciences has resumed operations at the Mahad post annual maintenance shutdown.