Fertiliser stocks cushion India, but price pressures loom

India’s exposure is greatest in urea, with Gulf imports and gas dependence making nitrogen fertilisers most vulnerable.

The escalation of conflict in West Asia has raised concerns about potential disruptions to India’s fertiliser supply just weeks before preparations begin for India’s crucial Kharif cropping season.

The region sits at the centre of the global fertiliser supply chain, linking energy markets, fertiliser feedstocks, and bulk shipping routes. While the conflict does not pose an immediate threat to India’s fertiliser availability, it has already triggered sharp increases in energy and freight costs that could translate into higher fertiliser prices and tighter supplies in the coming months.

To mitigate risks, the Government of India invoked the Essential Commodities Act (ECA) on March 9 to regulate natural gas allocation, assuring fertiliser plants about 70 per cent of their recent average gas consumption. At the same time, it has reassured markets about current fertiliser availability.

Fertiliser stocks as of early March stood at around 18 million metric tonnes (MMT), compared with 13 MMT last year. With Kharif fertiliser demand estimated at about 15 MMT, and domestic production continuing, albeit at reduced gas allocation, current inventories appear sufficient to cushion any immediate disruption.

Fertiliser markets remain highly sensitive to developments in West Asia, because the region lies at the intersection of the ammonia-urea-phosphate supply chain. Natural gas is the key feedstock for ammonia, the building block for nitrogenous fertilisers such as urea. In addition, shipping routes through the Strait of Hormuz play a critical role in transporting fertiliser inputs and finished fertilisers.

Since late February, global energy and logistics indicators have moved sharply. Brent crude prices rose by nearly 25 per cent, while natural gas prices surged between 30 per cent and 50 per cent. Maritime transport has also been affected as vessels reroute away from conflict zones, and insurers impose war-risk premiums.

The Baltic LNG freight index has jumped from around 3,800 dollars to over 20,000 dollars per day of charter, while tanker freight benchmarks such as the Baltic Dirty Tanker Index have risen by nearly 50 per cent, reflecting longer routes and reduced vessel availability. Evidently, the conflict is already transmitting cost pressures across fertiliser supply chains.

History suggests that fertiliser markets can become highly volatile when energy shocks, supply disruptions, and logistics constraints occur together. During the 2008 global commodity super-cycle, when crude oil prices exceeded 130 dollars per barrel, fertiliser prices surged sharply. DAP prices crossed 1,000 dollars per tonne, while urea approached 800 dollars per tonne.

A second spike occurred in 2022 following the Russia-Ukraine conflict, when sanctions on Russian and Belarusian fertiliser exports and soaring natural gas prices pushed fertiliser prices to new highs. Potash prices briefly reached around 1,200 dollars per tonne, the highest among major fertiliser nutrients in recent decades.

Current fertiliser prices remain below those crisis peaks, but the current conflict has revived similar risk channels.

India’s exposure varies across fertiliser types. The country consumes roughly 31 MMTs of fertilisers annually, producing about 20 MMTs domestically. Nitrogen fertilisers are the most exposed. Around one-quarter of India’s urea consumption is imported, with a significant share sourced from Bahrain, Oman, Qatar, and the United Arab Emirates.

Domestic urea production also depends heavily on natural gas, much of which is imported, including LNG from Qatar.

Phosphatic fertilisers such as DAP face somewhat lower direct exposure. Around 41 per cent of domestic consumption is met through imports, largely sourced from countries outside the immediate conflict zone. However, domestic production still depends on imported inputs and energy, leaving the sector vulnerable to rising costs.

In contrast, potash fertilisers are less directly exposed to Gulf disruptions, since global production is concentrated in Canada, Belarus, and Russia, although higher freight and insurance costs could still push prices upward.

The timing of these developments is particularly important. March and April are critical months for fertiliser procurement ahead of the Kharif season, with sowing beginning around May and June. Much of India’s cropped area depends on the Monsoon, making timely fertiliser availability essential for agricultural production.

This year, the situation is further complicated by emerging concerns about possible El Nino conditions, which could influence monsoon patterns and add another layer of uncertainty.

For now, India’s comfortable inventories and diversified sourcing provide protection against immediate shortages. The more immediate impact is likely to be higher fertiliser prices, increased subsidy pressures, and tighter import timing. If disruptions to energy supplies, fertiliser exports or shipping routes in the Gulf persist, supply conditions could tighten as the Kharif season approaches.

Periods of uncertainty also create risks within domestic supply chains. Precautionary stocking or speculative hoarding can amplify supply stress even when aggregate stocks remain adequate. Preventing such behaviour will, therefore, be critical to ensure that fertilisers reach farmers in time.

For India, the West Asia conflict represents an immediate fertiliser price shock and a potential supply challenge if disruptions persist into the coming months.

Shweta Saini is CEO, Arcus Policy Research, T Nandakumar is former Secretary Agriculture, GOI, and G K Sood is Chairperson, Arcuserves.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)