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PRILLING. MORE CONTROL, MORE PROFIT. MAGAZINE | SEPTEMBER 2019
PRILLING. MORE CONTROL, MORE PROFIT.
MAGAZINE | SEPTEMBER 2019
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ON THE COVER
CONTENTS
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Kreber is a Dutch family-owned company specialising in prilling for decades. The company is able to prill a variety of chemical substances such as several fertilizers. Continuously innovating the prilling process, their prilling solutions and prilling equipment, Kreber’s R&D team is able to take prilling technology and customer solutions to the next level.
PRILLING. MORE CONTROL, MORE PROFIT.
MAGAZINE | SEPTEMBER 2019
03 Comment
05 World News
10 The State of Play in IndiaK. Ravichandran, Varun Gogia, Ravish Mehta and Swarup Raj Jena, ICRA, India, discuss the outlook for India’s fertilizer industry and the country’s involvement in global fertilizer markets.
17 Cleaning Up One’s ActGordon Cope, Contributing Editor, examines how a spate of new technologies promise to improve the fertilizer sector’s environmental report card.
21 Scrubbing Up NicelyAli Goudarzi, CECO Environmental, UAE, reveals how an ammonium nitrate producer maintained compliance with emissions regulations during a growth spurt.
27 Striking a BalanceDoug Azwell and Steven Ziebold, DuPont Clean Technologies, USA, explore the design choices and performance trade-offs to be considered between various ammonium nitrate prill tower scrubber systems.
34 A More Fluid Design Toon Nieboer, Kreber, the Netherlands, explains how industry research projects and reassessments of prilling bucket technology are seeking the goal of a perfect prill.
39 Handle With CareRonald Peddie, Peddie Engineering, Australia, reviews methods for handling wastewater from explosives grade prill production.
43 Fertilizer Moisture ControlChristina M. Konecki, ArrMaz, recently acquired by Arkema, USA, reviews a range of coatings designed to reduce moisture absorption in granular fertilizers.
47 Giving Off Good VibrationsTountzer Ramadan, RHEWUM, Germany, explains how the choice of screening technology formed a key part of a new urea plant in the Middle East.
50 A Mist OpportunityVictor H. Machida, Vitor A. Sturm, Eduardo H. R. A. de Almeida and Bruno B. Ferraro, Clark Solutions, Brazil, review options for reducing mist generated during phosphoric and sulfuric acid manufacturing.
57 The Importance of Gas Analysis Andrew Chappell, Coda, UK, looks at how gas analysis technology can enhance safety and control product quality in the fertilizer production process.
61 A Strategic Partnership: Part OneHeinz Tischmacher, Tischmacher & Partner, Germany, delves into a project that aims to bring the fertilizer and cement industries together to tackle the issue of CO
2 emissions.
65 A New PerspectivePeter Maas, Grandperspective GmbH, Germany, discusses an alternative method for monitoring and reacting to gas leaks.
69 Polishing Up Plant PerformanceDr. Nataliia Temnaya and Dr. Sergey Suvorkin, NIIK, Russia, explain how nitric acid plants in Russia have been modernised through improved performance parameters and installation of new process units.
76 Keeping It CoolDr. Jörg Weidenfeller, Arvos | Schmidt’sche Schack, Germany, outlines the importance of a robustly designed process gas cooler in ammonia plants.
83 Seal of ApprovalDene Halkyard, Flexitallic UK Ltd, UK, discusses gaskets used in shell and tube heat exchangers, and their efficiency in high temperature and pressure applications.
87 Transferable KnowledgeDietmar Sohm, BERTSCHenergy, Austria, explains how power plant construction experience can be applied to apparatus engineering, particularly in the field of syngas.
91 Getting the Right BlendLarry Taylor and Jeff Coon, Sackett-Waconia, USA, consider how fertilizer blending systems are evolving in response to changing attitudes towards fertilizer applications.
95 Simple Solutions Tim Herbig and Mike Schmidt, Bluefield Process Safety, USA, consider a number of risk mitigation ‘hacks’ available to nitrogen products producers.
99 Realigning Process SafetyAngus Keddie, Process Safety Matters, UK, argues that the process safety goals of the organisation and the individual are sufficiently incoherent to merit attention, and suggests some ways to drive alignment.
104 FactsThis month we bring you 15 facts from India.
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COMMENTLAURA DEAN, ASSISTANT EDITOR
SEPTEMBER 2019 | WORLD FERTILIZER | 3
MANAGING EDITORJames [email protected]
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In August 2019, it has been near-on impossible to miss the fact that over 2500 fires are currently burning in the Amazon rainforest. The world news has been dominated with updates of the
environmental disaster raging in Brazil. Moreover, celebrities such as actor and environmentalist Leonardo DiCaprio, footballer Cristiano Ronaldo and singer Shakira, to name a few, have been drawing attention to the tragedy by posting articles and photos on social media. The figures and satellite images have shocked the public, triggering a global Twitter trend under the hashtag #prayforamazonia. Even world leaders are chiming in to give their opinion, with French President
Emmanuel Macron tweeting, “Our house is burning,” and deeming the incident an “international crisis.”
The Amazon is the world’s largest rainforest, home to approximately 3 million plants and animals, as well as over 1 million indigenous people. Furthermore, the forest is crucial to regulating global warming, with its trees absorbing millions of tonnes of carbon emissions every year. According to the WWF, as well as 20% of the earth’s oxygen, the region also produces 17 – 20% of the world’s water.
However, the fires’ activity is having a major negative impact on the environment. When the trees are cut down or burnt, the carbon they were storing is released into the atmosphere and the reduction in trees also diminishes the rainforest’s capacity to absorb carbon emissions. So far this year, fires in the Amazon have released the equivalent of 228 million t of carbon dioxide, which is the highest recorded amount since 2010. The unique nature of the region’s biodiversity and impact of the region’s ability to absorb carbon emissions, has made this a true natural disaster.
The cause of this most recent spate of fires has been attributed to multiple factors, including natural phenomena such as dry weather, wind, and heat, as well as a direct result of human action. Environmental organisations and researchers have argued that the wildfires were instigated by cattle ranchers, farmers and loggers who want to clear and use the land, encouraged by the country’s pro-business President, Jair Bolsonaro.
This is not the first time, nor will it be the last, in which farmers have come under scrutiny for their impact upon the environment. In the UK, agriculture is currently responsible for approximately 9% of the country’s greenhouse gas (GHG) emissions. However, the National Farmers’ Union (NFU), representing 55 000 farmers, has set a target of net-zero emissions in British farming by 2040. This is to be achieved through the introduction of new technologies such as robots and drones, as well as planting more trees and keeping livestock outside for longer.
The fertilizer industry is also reflecting on its own impact on the environment, such as wastewater and GHG emissions. This month’s keynote article on environmental compliance by Contributing Editor Gordon Cope, focuses on ways in which companies, such as BASF and Haldor Topsoe, are working towards reducing the industry’s environmental footprint as well as outlining ways in which these practices are be furthered in the future. Turn to p. 17 to read more on the subject.
A new concept for a capacity increase or an improvement of absorption
efficiency has been developed by Messer Group GmbH. Oxygen is dosed
to specific points in the liquid and/or gaseous phase in order to optionally
increase efficiency significantly or increase plant capacity.
Advantages at a glance:• Considerable increases in capacity (up to 10%)
• Significant NOx reduction before and after existing DeNOx plants
• Longer life time of existing DeNOx catalysts, requiring less frequent
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• Saves NH3 or natural gas for the DeNOx
• Low investment costs – short payback period
• Additional flexibility of production capacity
Messer produces industrial gases, medical gases and gas mixtures.
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WORLD NEWS
SEPTEMBER 2019 | WORLD FERTILIZER | 5
Yara and Nel have signed an agreement to develop clean hydrogen which would allow the former to realise low
carbon footprint fertilizer production.The project is based on Nel’s development of new water
electrolyser technology that will be tested at Yara’s existing ammonia plant in Porsgrunn, Norway. The aim is to produce hydrogen from renewable sources that will then be fed into the ammonia plant, which will in turn either be used in fertilizer
production or used as green ammonia. The project is supported by Norway’s Research Council, Innovation Norway and Enova through the PILOT-E programme, a funding scheme that aims to speed up the development and implementation of green energy technology.
The capacity of the electrolyser will be 5 MW, corresponding to 1% of the hydrogen production in Porsgrunn. It is expected to be installed in 2022.
NORWAY Yara and Nel aim to develop carbon free hydrogen for fertilizer production
Gensource Potash Corp. has reached a signifi cant milestone in the fi nancing of its initial Project, one of Gensource’s
small-scale potash production facilities within its wholly owned Vanguard Area in central Saskatchewan, Canada, defi ned by mineral leases KL-244 and KL-245.
Gensource has received letters of intent from KfW IPEX-Bank of Germany and Export Development Canada (EDC). Both parties are currently evaluating how they can support the project by providing senior debt. Gensource is also in discussions with a major global bank that may be engaged to round out the club.
KfW IPEX-Bank is planning to assume a role as the arranger
of the senior debt financing and will work with EDC and other senior lenders to conduct customary due diligence and possibly utilise official export promotion schemes as credit enhancement.
As is customary, final, definitive, terms have not yet been agreed upon and the financing remains conditional upon the successful completion of the detailed due diligence process.
On completion of the outstanding due diligence process, an agreed term sheet will be submitted for the senior lenders’ formal credit approval. Following this, Gensource and the Senior Lenders will prepare and execute definitive facility and security documentation.
CANADA Gensource Potash Corp. announces initiation of senior debt fi nancing
India is set to drive the global ammonia industry’s growth from planned and announced plants between 2019 and 2030,
contributing approximately 20% of the total ammonia capacity additions, according to GlobalData.
The company’s report, ‘Global Ammonia Capacity and Capital Expenditure Outlook, 2019 – Asia and the Middle East to Lead Globally in Terms of Ammonia Capacity Additions’, reveals that global ammonia capacity is expected to experience considerable growth over the upcoming years, from approximately 230 million tpy in 2018 to more than 280 million tpy by 2030. In addition, approximately 103 planned and announced plants are scheduled to come online, pre-dominantly in Asia and the Middle East over the next 11 years.
India is set to have large capacity additions of 9.27 million tpy by 2030 – 6.58 million tpy is expected to come from planned plants while 2.69 million tpy is likely to come from the announced plants. The country is set to bring 14 planned and four announced plants during the outlook period.
Dayanand Kharade, Oil and Gas Analyst at GlobalData, commented: “India is set to have large ammonia capacity additions, aiming at the country’s increasing fertilizer demand and reducing its dependence on imports. ”
Iran has been identified as the second highest country in terms of capacity additions. The country is set to add 7.67 million tpy of planned and announced ammonia capacity from newly built and expanded plants by 2030. Among these, 6.25 million tpy is expected to come from planned plants and 1.43 million tpy from announced plants.
The 10 countries expected to provide the greatest ammonia capacity additions during the outlook period are India, Iran, Russia, Nigeria, the US, China, Egypt, Australia, Saudi Arabia and Uzbekistan.
Among the companies discussed in the report, Dangote Industries Ltd, Oteko and Nagarjuna Fertilizers and Chemicals Ltd are expected to lead globally with highest ammonia capacity additions of 2.90 million tpy, 2.50 million tpy and 2.05 million tpy respectively in 2030.
INDIA Report concludes that India will drive global ammonia industry growth between 2019 and 2030
WORLD NEWSIN BRIEF
6 | WORLD FERTILIZER | SEPTEMBER 2019
NEWS HIGHLIGHTS
Sirius Minerals suspends US$500 million bond
Nutrien obtains Australian competition and consumer commission approval for Ruralco acquisition
Encanto Potash Corp. secures CAN$7.5 million operating line of credit
Verde AgriTech releases 2Q19 results
Western Potash appoints new CEO and President
BayoTech selects Mo Vargas as President and CEO
Visit our website for more news:
www.worldfertilizer.com
A l-Nasr Fertilizers Co., a subsidiary of the Holding
Company for Chemical Industries, has signed a memorandum of understanding (MoU) with Benchmark Power International to establish a new ammonia production plant in Egypt.
According to the MoU the two companies are to cooperate in establishing a new ammonia production plant with a capacity of 1200 tpd in the first phase, which will be doubled by the completion of the second phase, at an estimated cost of US$600 million.
The MoU was signed by the Chairman of El Nasr Fertilizers Company, Hamdy Gaber, and the Chairman of Benchmark Power International, Ahmed Bahgat, in the presence of the Chairman of the Holding Company for Chemical Industries, Emad Mostafa.
El Nasr Co. is due to provide the project with an unused plot of land with an area of approximately 460 000 m2 in the Ataka area of the Suez Governorate for the establishment of the plant on a 25-year usufruct basis.
EGYPT MoU signed for new ammonia plant
POLAND CEAMAG granulation technology selected for Włocłavek site
ANWIL has selected technology from CEAMAG for use at its
new ammonium nitrate (AN) based granulated compounds production plant at the Włocławek site, Poland.
The plant will produce several formulas of granulated fertilizers as gaseous nitrogen (GAN), calcium ammonium nitrate (CAN) and several types of ammonium sulfate nitrate (ASN). The single process train will allow the production of at least 1500 million tpy of granules.
Under an agreement signed with the engineering, procurement and construction (EPC) contractor Tecnimont, Italy, CEAMAG will deliver the license for use of the technology, the basic engineering package, the proprietary equipment and necessary supervisions during pre-commissioning and commissioning of the plant. First production is expected by mid-2022.
AUSTRALIA Perdaman chooses SynCORTM solution for world’s largest ammonia plant
Perdaman Chemicals and Fertilisers has signed a licensing
and engineering contract for Haldor Topsoe’s SynCOR AmmoniaTM solution for its AUS$4 billion ammonia/urea plant in Karratha,
Western Australia. Stamicarbon has been chosen as urea licensor, and gas supply has been secured. The next milestone for the project will be fi nancial close, which is expected by the end of March 2020.
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DIARY DATES64th Annual Safety in Ammonia Plants and Related Facilities Symposium08 – 12 September 2019San Francisco, California, USaiche.org/conferences/annual-safety-ammonia-plants-and-related-facilities-symposium/2019
ANNA EU 201908 – 13 September 2019Vienna, Austriaanna-eu.com
Turbomachinery & Pump Symposia10 – 12 September 2019Houston, Texas, UStps.tamu.edu
Free Basic Training for ProSimPlus HNO314 September 2019Vienna, Austriaprosim.net/en/events--free-basic-training-for-prosimplus-hno3-253.php
GPCA Fertilizer Convention 201924 – 26 September 2019Muscat, Omangpcafertilizers.com/program
Middle East Nitrogen + Syngas 201927 – 29 October 2019Muscat, Omanevents.crugroup.com/middleeastnitrogen/home
Sulphur 2019 + Sulphuric Acid04 – 07 November 2019Houston, Texas, USevents.crugroup.com/sulphur/home
Danakali has announced that Africa Finance Corp. (AFC) and African Export Import
Bank (Afreximbank, together the Mandated Lead Arrangers), have obtained formal credit approval to provide the Colluli Mining Share Co. (CMSC) with US$200 million in senior debt fi nance (the Facility).
The Facility will be part of the overall project funding package used for development and construction of the Colluli potash project in the Danakil Depression region of Eritrea.
The Facility, funded equally by the Mandated Lead Arrangers, remains subject to completion of final documentation and will be subject to conditions precedent to drawdown. It will be underwritten by the Mandated Lead Arrangers and includes formal approval of export credit support from the Export Credit Insurance Corp. of South Africa SOC Ltd (ECIC).
ECIC is South Africa’s statutory export credit and foreign investment insurance provider, and this transaction will represent the first time they have provided export credit support to a non-South African bank.
The credit approval represents the conclusion of an extensive due diligence process by the Mandated Lead Arrangers and ECIC, which included: site visits by the Mandated Lead Arrangers and independent experts; meetings with the Eritrean National Mining Corp. (ENAMCO), Eritrean Ministries and other key Eritrean stakeholders; and extensive technical, marketing, environmental, social and legal evaluations, including the assessment of independent expert reports.
CMSC and the Mandated Lead Arrangers will now proceed to final documentation and ultimately execution of the facility.
ERITREA Danakali’s Colluli potash project receives credit approval for senior debt fi nance
US Mosaic Company announces 2Q19 results and idles production at Colonsay potash mine
The unprecedented wet weather in the Midwest US negatively impacted the
Mosaic Company’s North American spring fertilizer sales volumes and phosphates margins.
Mosaic reported a net loss of US$233 million for 2Q19, including a US$284 million noncash after-tax charge for the permanent closure of the Plant City phosphate facility in Florida, US, in June. The company reported diluted earnings per share (EPS) of negative US$0.60, which includes a negative US$0.72 per share impact for notable items, primarily the closure of the Plant City facility. For the period, adjusted EBITDA was US$349 million, and adjusted EPS was US$0.12.
The company’s potash segment delivered a gross margin of US$84/t as cash costs per tonne declined sequentially, despite a lower operating rate as a result of slower sales in the quarter.
The company has revised its full-year adjusted EBITDA guidance to US$1.8 to US$2.0 billion and adjusted EPS guidance of
US$1.10 to US$1.50, primarily reflecting the impact of lower than expected sales volumes and a slower recovery of phosphates margins.
Mosaic Fertilizantes, the company’s Brazilian unit, resumed operations at 60% at the Tapira phopshate mine in July, and was expected to resume full operations in August 2019. The Araxá mine received an operating permit for tailings dam B6, and was expected to resume full operations in August 2019. Mosaic expects Mosaic Fertilizantes to achieve its targeted US$275 million in net synergies in 2019, despite challenges related to the new Brazilian tailings dam regulation.
The accelerated ramp up of the low-cost Esterhazy K3 potash project in Saskatchewan, Canada, is on schedule, having produced over 400 000 t of ore year-to-date 30 June 2019. This production, combined with available inventory, facilitated the temporary idling of the higher cost Colonsay potash mine. These actions are intended to lower cost of production and accelerate inventory depletion.
10
THE STATE OF PLAY IN INDIA
11
K. Ravichandran, Varun Gogia, Ravish Mehta and Swarup Raj Jena, ICRA, India, discuss the outlook for India's fertilizer industry and the country's involvement in global fertilizer markets.
A griculture has played an important role in the economic development of India with approximately 17% of the gross value added (GVA) and more than 50% of the population depending
on it. In the last 15 years, India's foodgrain production increased at a compound annual growth rate (CAGR) of approximately 3%, from 175 million t in 2002 – 2003 to 285 million t in 2017 – 2018. With only a marginal increase in acreage, the increase in productivity levels plays a vital role in the growth of the agriculture industry, as fertilizers account for at least half of the crop yield. However, while India has the largest area of arable and permanently cropped land in the world, it ranks third in the world in overall foodgrain production, after China and the US, primarily due to low crop productivity. With limited arable land and rising
12 | WORLD FERTILIZER | SEPTEMBER 2019
food needs, the long-term potential for increased fertilizer usage is high. On the other hand, with the increase in acreage from 16.3 million hectares in fi nancial year (FY) 2002 – 2003 to 24.16 million hectares in FY 2017 – 2018 and improved productivity from 8.9 t/hectare to 12.6 t/hectare during the same period, all India horticulture production increased at a CAGR of approximately 5% from 144.4 million t to 305.4 million t during the 15-year period.
Demand trends for fertilizers The Indian fertilizer industry can broadly be divided into two categories, depending on the nutrient composition: (i) nitrogenous fertilizers and (ii) phosphatic and potassic (P&K) fertilizers. The overall fertilizer consumption in India has grown at a CAGR of 1.4% from 50.6 million t in FY 2009 to 57.8 million t in FY 2019. In FY 2019, the primary sales volumes for fertilizers grew at a moderate rate of 4.4% to 57.8 million t in FY 2019 from 55.4 million t in FY 2018, despite the weak
monsoon (Figure 1). While urea sales grew by 4.6% to 31.7 million t in FY 2019 from 30.3 million t in FY 2018, non-urea sales grew by 4.3% to 26.19 million t in FY 2019 from 25.1 million t in FY 2018.
Demand-supply scenario for ureaThe domestic consumption of urea grew moderately at a CAGR of approximately 0.8% from 30.5 million t in FY 2014 to 31.7 million t in FY 2019. Demand for urea remains stable on account of the traditionally high usage and also the fact that freeing up of retail prices for non-urea fertilizers, following the implementation of a nutrient-based subsidy (NBS) for these fertilizers, that has led to a signifi cant price differential of urea in comparison to non-urea fertilizers. With the New Urea Policy in 2015 (NUP-2015) measures and the gas pooling policy encouraging greenfi eld and brownfi eld investments in urea, production grew at a CAGR of 1.1% from 22.7 million t in FY 2014 to 24.0 million t in FY 2019 against the consumption growth of approximately 0.8% CAGR during the same period. However, domestic urea production remained stagnant at 24 million t in FY 2019 as compared to 24.1 million t in FY 2018. Nevertheless, import dependence remains high with approximately 24% of the urea demand met by imports during FY 2019 (Figure 2).
Demand-supply scenario for non-urea fertilizersThe Indian P&K fertilizer industry works under the NBS scheme with effect from from 1 April 2010 as per which prices of these fertilizers have been partially deregulated. The performance of the Indian P&K fertilizers industry has remained volatile, post the introduction of the NBS due to economic (such as demand-supply, commodity prices and currency movements) and regulatory (such as subsidy delay) issues. As a result, the domestic consumption of P&K fertilizers has been volatile with volumes fl uctuating between 20.6 million t on the lower side and 31.5 million t on the higher side. However, during FY 2019, P&K fertilizer sales volumes reported a 4% growth to 26.1 million t, driven by higher imports, which rose by 11.8% to 8.7 million t. The imports were dominated by di-ammonium phosphate (DAP) and muriate of potash (MOP), which grew on account of the unviable domestic production because of cost pressures arising from high prices of phosphoric acid and the rupee depreciating against the US dollar. Domestically manufactured P&K volumes remained stagnant with a growth rate of approximately 1% during FY 2019 due to the drought-like situation in certain key agri-focused regions of the country. Import dependence, foreign exchange fl uctuations, agro-climatic risks and retail price differential of P&K fertilizers in comparison to urea continue to remain the key challenges for the P&K industry.
Monsoon trends and impact on fertilizer demand A study of the trends in domestic fertilizer volume growth for the past 15 years reveals that the correlation of the monsoon and fertilizer sales in the past has not been very high as primary fertilizer sales also depend on other factors such as systemic inventory levels, reservoir levels and soil moisture levels (Figure 3). During 2018, the south-west monsoon has been erratic and reported at 91% of its long period average. Currently, the reservoir levels in certain key areas have been signifi cantly lower than last year levels and the ten-year average levels. The reservoir levels in the states of Maharashtra, Andhra Pradesh and
Figure 1. Trend in fertilizer sales volumes. Source: Department of Fertilizers (DoF), ICRA research.
Figure 2. Trend in urea demand-supply scenario. Source: DoF, ICRA research.
Figure 3. Trend in fertilizer sales volume and monsoon deviations. Source: Indian Meteorological Department (IMD), DoF, ICRA research.
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Telangana are down 62%, 74% and 3% respectively. As a result, kharif sowing is expected to be delayed in the current year.
Raw material/feedstock Natural gas is used as feedstock and fuel in the urea sector, forming approximately 70 – 80% of the cost of production of urea, depending on feedstock prices and the energy effi ciency of the plant. Out of the 32 urea plants in India, 29 are gas based. The total gas consumption of all these plants was 41 million m3/d in 2018 – 2019, out of which approximately 17 million m3/d is being supplied through domestic sources, and the rest through imported regassifi ed LNG (R-LNG). With domestic production of natural gas not witnessing material growth and priority of allocation of the same being shifted to the City Gas Distribution (CGD) sector, the share of R-LNG in the overall consumption mix has witnessed an increase over the last couple of years for the fertilizer industry. For FY 2019, the share of R-LNG increased to 58%, up from 49% in FY 2017. This leads to a higher urea
production cost and hence a higher subsidy burden for the Government of India (GoI)/industry.
The P&K fertilizer industry is highly dependent on imports, even while India has large manufacturing capacities of DAP and NPK fertilizers. MOP is entirely imported (Figure 4). India imports signifi cant quantities of key raw materials such as rock phosphate, phosphoric acid and ammonia. In addition, with a limited number of global suppliers, the bargaining power of the Indian fertilizer players with these suppliers is limited to a certain extent. Thus, the industry faces both availability and pricing issues for key raw materials on a regular basis.
Prices of key raw materials (like phosphoric acid) have remained higher in respect to the end products (such as DAP) in certain quarters of FY 2019, making it unviable to undertake domestic DAP production and forcing the industry to rely increasingly on imports, thereby impacting the domestic manufacturers. International prices and currency movements play a major role in determining the end-product prices and profi tability of the various fertilizers (Figure 5).
Profi tability of major incumbents The Indian fertilizer industry sells products to farmers below their cost of production and is eligible for subsidy from the GoI for notifi ed fertilizers. The total realisation thus comprises subsidy and farm gate price (maximum retail price [MRP]). However, the decomposition of realisation is different for urea and non-urea fertilizers.
Urea farm gate prices are fi xed by the GoI, and the subsidy varies in line with feed and fuel prices to ensure normative fi xed return (post tax 12% return on equity [ROE]). On the other hand, in the case of non-urea fertilizers (i.e. DAP, NPK, MOP), the subsidy is fi xed for a year, and the players are free to fi x their own MRP in line with the raw material prices.
Profi ts for urea players While the Indian urea industry witnesses a favourable demand-supply scenario, the returns for manufacturers have been under pressure in recent years due to lack of timely revisions in normative costs as part of the subsidy framework, subsidy delays and a weaker rupee leading to higher feedstock (gas) costs. The operating margins of the industry have remained modest over the past few years due to an increase in the cost base. The aggregate debt-equity ratios have also remained relatively high due to the working capital-intensive nature of the industry, primarily due to high subsidy receivables. Moderate returns and high gearing levels also lead to modest coverage indicators. With subsidy delays likely to continue leading to high working capital borrowings, the fi nancial performance of the industry is expected to remain modest over the medium term.
The only way urea players can expect to see profi ts in excess of a 12% ROE is by outperforming the normative cost parameters. The players have tried to achieve the same by:
Achieving lower-than-normative energy consumption (measured in GCal/t for production of urea) by taking up energy-saving/conversion projects.
Operating the plant consistently above the normative capacity utilisation level.
Undertaking debottlenecking projects and producing beyond the cut-off capacity to earn import parity pricing (IPP)-based realisations.
Figure 4. Imported vs domestic mix for key fertilizers in FY19. Source: DoF, ICRA research.
Figure 5. International price trends for urea, DAP and MOP. Source: DoF, ICRA research.
Table 1. Key financial metrics at various capacity utilisations (Source: ICRA research)
Gas price at US$6.5/mmbtu (Rs. 68 = US$1)
Capacity utilisation
70% 80% 90% 100%
Minimum DSCR (times)
0.77 0.88 0.99 1.10
Average DSCR (times)
0.86 0.99 1.13 1.25
Project IRR (post-tax)
6.7% 9.23% 11.30% 13.03%
Profi tability for P&K players For non-urea players, profi tability is largely based on demand-supply balances, competitive raw material procurement and currency movements, given that all companies have to import raw materials. Profi tability for these players remained weak during FY 2016 – 2018 as agro-climatic factors, high international commodity prices, depreciation of the rupee and high build-up of inventory in the domestic market led to low profi tability. Profi tability margins remained relatively muted in FY 2019 too due to a demand slowdown.
Overall, high subsidy delays and weak return on capital employed (RoCE) across the industry remain major concerns. The subsidy backlog at the end of FY 2018 is expected to have been approximately Rs. 331 billion and is expected to have increased to Rs. 390 billion by the end of FY 2019, given the increase in natural gas prices, depreciation of currency and expected volume growth during the year. Nevertheless, the strategic importance of the sector in ensuring the food security of the nation and the certainty of subsidy receipt from the GoI, mitigate the above risks to some extent.
Update on new urea projects Domestic urea capacity had not witnessed any signifi cant capacity additions over the last couple of decades, apart from debottlenecking of existing capacities. The pause on capacity additions was a result of unattractive policies governing the urea sector. After the Urea Investment Policy of September 2008 failed to encourage any major expansion projects, the GoI approved the New Urea Investment Policy (NIP) in December 2012, under which the realisation of urea from new projects has been benchmarked to import parity prices, subject to a fl oating fl oor and ceiling prices, which are, in turn, linked to gas prices, to effectively ensure 12% (fl oor) and 20% (ceiling) post-tax ROE. Subsequently, the Department of Fertilizers (DoF) notifi ed certain amendments to NIP-2012 in October 2014, as per which the term ‘guaranteed buyback’ was removed. This move increased the marketing risk for the new plants by providing the GoI the fl exibility to restrict the offtake from the plant and resort to additional import of urea and lower its subsidy outgo, if it was substantially lower than the domestic procurement from the new plants. However, with the focus of the GoI on reducing its reliance on urea imports, the offtake risk is somewhat reduced. Moreover, some of the older urea plants which are unable to meet the tightened energy norms might face closure.
Post the amendments in the policy among private players, only Chambal Fertilizers & Chemicals Ltd had shown interest in setting up a new urea capacity and has successfully commissioned the 1.34 million tpy capacity in January 2019. Four other plants, one of Ramagundam Fertilizers and Chemicals Ltd (RFCL), as a joint venture (JV) of Engineers India Ltd and National Fertilizers Ltd and three plants of Hindustan Urvarak & Rasayan Ltd (HURL), a JV of Coal India Ltd (CIL), Indian Oil Corp. Ltd (IOC) and NTPC Ltd (NTPC) are being set up. While RFCL’s plant is expected to be commissioned by December 2019, HURL’s plants will be commissioned by the end of March 2021 and June 2021. With these capacities coming up, India’s reliance on imports for urea is likely to fall drastically. Some of the players are also looking at opportunities to set up overseas plants in case they are able
16 | WORLD FERTILIZER | SEPTEMBER 2019
to obtain gas at reasonable prices. Other notable projects include Talcher Fertilizers (based on coal gasifi cation), where progress has been slow, and Matix Fertilizers, which has stalled over the gas availability issue.
These plants are highly capital intensive and are being funded through a large portion of debt. To achieve debt servicing, these plants will have to work at high capacity utilisation levels, thereby underscoring the offtake risks. As can be seen from Table 1, as capacity utilisation reduces, the key fi nancial metrics for the new brownfi eld projects are adversely impacted.
Looking ahead, key policy changes which are expected in the urea sector are the NBS policy and Direct Benefi t Transfer (DBT) of subsidy to farmers’ bank accounts, both of which are fraught with signifi cant risks for the incumbents.
India’s impact on the world urea marketIndia is one of the largest players in the urea industry in terms of production, consumption and trade. It is the second largest producer of urea in the world, accounting for 14% of the global urea capacity. However, India’s domestic consumption is much higher than the domestic production and it is a net importer of urea. During the last few years, urea imports to India were reported to be high at 7 – 9 million t, which is 18 – 28% of the world urea exports. With such a high import requirement, India is a key market for global fertilizer producers currently. However, going forward approximately 5 million t of urea capacity is to be added over the next two years, leading to a fall in import dependence. As per ICRA estimates, urea imports will decline to approximately 0.5 – 1 million t by the end of FY 2022, which will lead to an increase in the global surplus of urea.
India’s impact on the world phosphatic marketThe global phosphate fertilizer industry is relatively well consolidated, compared to urea, with the top 10 producers accounting for an estimated 65% of the total DAP and MAP capacity. Though India is the third largest producer of P fertilizers, a large proportion of P&K fertilizer and/or their raw materials are imported. During FY 2019, India’s DAP imports stood at 7 million t, which forms 35 – 40% of the world trade in DAP. Hence, India enjoys a formidable position in the global phosphatic market, wherein any movement in India’s DAP demand impacts the international DAP prices. However, a relatively well consolidated industry structure for phosphates reduces India’s bargaining power to some extent.
India’s impact on the world potash marketThere are only a few large suppliers of potash fertilizers globally as potash mineral reserves are available only in certain regions. As India does not have potash reserves, it imports its potash requirements of approximately 2.5 – 3.5 million tpy. Its potash consumption accounts for only approximately 5 – 7% of the global demand for potash, which provides it with moderate bargaining power. The pricing of the contract between the potash suppliers and two of the major consumers is set through negotiations. The pricing of the potash contract with China, which consumes nearly 20% of the total potash market, usually sets the fl oor on the price at which potash will be available to India. Hence, despite no
domestic production, India enjoys a moderately dominant position in potash fertilizers, although the extent of the dominance is much lower than in the case of urea and phosphates.
OutlookOverall, for FY 2020, the upside in the overall volumes is likely to be limited at 2 – 4% due to high systemic inventory levels at the beginning of the year. Slow progress of the monsoons in the current kharif season could be another damper for fertilizer sales in the current fi scal year. While the progress of the monsoon has been slow so far, the same could pick up going forward and aid fertilizer sales.
The urea industry is expected to benefi t from the softening of spot R-LNG prices and rangebound crude oil prices as low energy prices keep the cost of production lower. It also results in lower working capital requirements and associated interest outgo, which is a drain on profi tability. The P&K players are expected to witness improvement in profi tability in FY 2019 as raw material prices, most notably sulfur and ammonia, have witnessed moderation.
With regard to the subsidy issue, the industry continues to face liquidity issues due to the high outstanding subsidy, the timeline for which needs to be improved, being a big drain on the players’ profi tability. Although DBT has been implemented for the sector, the subsidy continues to be routed through the industry instead of farmers. With subsidy recognition point shifting from point of despatch to the point of retail sale, the working capital cycle for the industry has been elongated. Meanwhile, the government needs to budget for the subsidy payouts adequately to do away with the backlog, which has remained in the range of Rs. 320 billion – Rs 350 billion for the last two fi scal years. The same is expected to increase going forward, given the expected growth in fertilizer sales volume and commissioning of new urea plants, which entail a higher subsidy component of imported urea unless the GoI increases the budgetary allocation for fertilizer subsidy adequately.
To conclude, ICRA believes that the GoI needs to take concrete measures to improve the fi nancial health of the fertilizer industry, which continues to reel under pressure from the subsidy delays and continued CAPEX due to reduction in the energy norms for the urea players, which keeps profi tability under pressure and credit metrics subdued. An increase in the farm gate price of urea to a meaningful level in relation to the import parity price will also be a key imperative to address nutrient distortions and subsidy concerns.
Bibliography 1. Fertiliser Association of India, ‘Production, import and consumption
of fertilisers’, https://www.faidelhi.org/general/Prodn-imp-cons-fert.pdf www.indianfertilizer.com.
2. Indian Fertilizer, ‘Sulphur prices’, https://indianfertilizer.com/article-details?title=Low-sulphur-prices-Has-the-floor-been-reached&id=41866&type=2 www.fertilizerworks.com.
3. Government of India Department of Fertilizers, ‘1st Point sales (All Product Groups)’, http://fert-report.nic.in/mfmsReports/getSaleOfProductGroupWise.
4. IRM, ‘Urea basket price’, http://fertilizerworks.com/sites/default/files/reports/Stats%20Page%20-%209%20August%202019.pdf.
5. Index Mundi, ‘International Urea Prices’, https://www.indexmundi.com/commodities/?commodity=urea.
6. Government of India Department of Fertilizers, ‘Monthly Bulletin from DoF’, http://fert.nic.in/page/monthly-bulletin.
7. Indian Journal of Fertilizers (January 2019).
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