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Fertilizer industry set for wave of investments of up to $10 bn 03-Sep-2010


After at least a decade’s hiatus, India’s fertilizer industry is set for a wave of investments of up to $10 billion (around `47,000 crore) as existing manufacturers seek to expand capacity and new project developers move in to take advantage of government policy initiatives and demand-supply mismatch. Global technology providers for fertilizer plants such as KBR Inc. of the US, Haldor Topsoe AS of Denmark and Saipem SpA of Italy are reinforcing their presence in India to gear up for the new build-up of capacity in a country where the last big fertilizer plant, built by Chambal Fertilisers and Chemicals Ltd, came up in 1999.
“Indian companies will take investment decisions to add about 7 million tonnes (mt) of urea over the next four to five years,” says Ashok Chopra, vice-president at Saipem India, estimating the total investment required at $8-10 billion. Chopra says it costs up to $1.25 billion to set up a 1.3 mt fertilizer plant. Saipem is supplying the technology and engineering expertise for Matrix Fertilisers and Chemicals Ltd’s proposed plant in West Bengal. The plant will produce 3,850 tonnes of urea daily, using coal-bed methane as feedstock, to be supplied by the $15 billion Essar Group. KBR is providing Matrix the technology to produce ammonia.
The industry is in a take-off mode, similar to what it experienced when GAIL (India) Ltd, then known as Gas Authority of India Ltd, built the HBJ (Hazira, Bijapur and Jagdishpur) pipeline in 1985-86 to transport gas to the hinterland where fertilizer plants were located, giving a fillip to fertilizer production, says Steve Pringle, senior vice-president for technology operations at KBR. Pringle sees even business houses with zero experience in fertilizer manufacturing entering the sector, contributing to the expected flood of new investment. By 2015, KBR’s technology business will earn 25% of revenue from India, he says.
Rising foodgrain consumption has fuelled demand for fertilizers in India, which depends on imports to meet most of its fertilizer requirements. The country relies on shipments from overseas for 21% of the urea, 67% of the phosphorous-based fertilizer and 100% of potash-rich fertilizer consumed in the country, according to the ‘Indian Fertiliser Outlook 2010’, a report released by Fitch Ratings India Pvt. Ltd in February. “As large numbers of households see their incomes growing as a result of sustained rapid growth, their food consumption patterns are changing. Households are consuming more and more pulses, dairy products, vegetables and sugar,” finance minister Pranab Mukherjee told Parliament in August.
“The entire agriculture system has to gear up to increase the productivity of food items,” he said. Reliance Industries Ltd, India’s most valuable company and biggest by revenue, has evinced interest in entering the fertilizer industry. Incumbents such as Indian Farmers Fertiliser Cooperative Ltd (Iffco), Krishak Bharati Cooperative Ltd (Kribhco), Rashtriya Chemicals and Fertilizers Ltd, Indo-Gulf Fertilizers and Chemicals Corp. Ltd, Chambal Fertilisers and Chemicals, Zuari Industries Ltd and Tata Chemicals Ltd have expressed interest in expanding capacity.
In order to meet domestic demand, the country will have to import 11.6 mt of fertilizers, including 3 mt of urea this year, minister of state for chemicals and fertilizers Srikant Jena told Parliament in August. 
Pringle exudes optimism that in five years, India could be a net exporter of urea, provided the promised investments take place. One constraint to investment in the fertilizer sector has been inadequate availability of feedstock. Fertilizer production requires natural gas, naphtha or furnace oil as feedstock and this input accounts for 70-80% of the total cost of production. Sixteen of the 28 functional urea plants in the country use natural gas; the rest use naphtha or furnace oil.
Source :, Wall Street Journal


For further information, please contact:

Capt. Sanjay Wadhwa
General Manager – Business Development                        
Ben Line Agencies India
T: +91 12 4405 7368

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